Discussion Paper Details

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Title: Horizontal Mergers and Product Quality

Author(s): Kurt Richard Brekke, Luigi Siciliani and Odd Rune Straume

Publication Date: September 2014

Keyword(s): horizontal mergers, quality and spatial competition

Programme Area(s): Industrial Organization

Abstract: Using a spatial competition framework with three ex ante identical firms, we study the effects of a horizontal merger on quality, price and welfare. The merging firms always reduce quality. They also increase prices if demand responsiveness to quality is sufficiently low. The non-merging firm, on the other hand, always responds by increasing both quality and prices. Overall, a merger leads to higher average prices and quality in the market. The welfare implications of a merger are not clear-cut. If the demand responsiveness to quality is sufficiently high, some consumers benefit from the merger and social welfare might also increase.

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Bibliographic Reference

Brekke, K, Siciliani, L and Straume, O. 2014. 'Horizontal Mergers and Product Quality'. London, Centre for Economic Policy Research.