DP12905 An Aggregative Games Approach to Merger Analysis in Multiproduct-Firm Oligopoly

Author(s): Volker Nocke, Nicolas Schutz
Publication Date: May 2018
Keyword(s): Aggregative Game, Herfindahl index, Horizontal Merger, market power, Multiproduct Firms, Oligopoly Pricing
JEL(s): L13, L40
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=12905

Using an aggregative games approach, we analyze horizontal mergers in a model of multiproduct-firm price competition with nested CES or nested logit demands. We show that the Herfindahl index provides an adequate measure of the welfare distortions introduced by market power, and that the induced change in the naively-computed Herfindahl index is a good approximation for the market power effect of a merger. We also provide conditions under which a merger raises consumer surplus, and conditions under which a myopic, consumer-surplus-based merger approval policy is dynamically optimal. Finally, we study the aggregate surplus and external effects of a merger.