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WELFARE-ENHANCING MERGERS UNDER PRODUCT DIFFERENTIATION

By TINA KAO and FLAVIO MENEZES

Abstract

In this paper we consider a model of duopoly with differentiated products to examine the welfare effects of a merger between two asymmetric firms. We find that, for quantity competition, the parameter range for welfare-enhancing merger widens if the products are closer substitutes. On the other hand, mergers are never welfare enhancing in this setting when firms compete in prices. Copyright � 2010 The Authors. Journal compilation � 2010 Blackwell Publishing Ltd and The University of Manchester.

DOI identifier: 10.1111/j.1467-9957.2009.02145.x
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