Discussion paper

DP10156 Horizontal Mergers and Product Quality

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.


Brekke, K and L Siciliani (2014), ‘DP10156 Horizontal Mergers and Product Quality‘, CEPR Discussion Paper No. 10156. CEPR Press, Paris & London. https://cepr.org/publications/dp10156