Whom Should I Merge With? How product substitutability affects merger profitability

Cellini, Roberto (2020): Whom Should I Merge With? How product substitutability affects merger profitability.

Abstract

The paper presents a simple model of oligopoly, in which three firms supply differentiated products. The degree of product substitutability is not uniform across goods. We investigate the merger profitability, and we show that profitability depends on the degree of good differentiation. Contrary to what seems to emerge from different models, we find that merger between firms that supply “more similar” product is more profitable as compared to merger between firms supplying more differentiated goods.

• Item Type: MPRA Paper
• Language: English
• Keywords: oligopoly; merger; profitability; merger paradox
• Subjects: D - Microeconomics > D4 - Market Structure, Pricing, and Design > D43 - Oligopoly and Other Forms of Market Imperfection; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets

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