Working Paper: CEPR ID: DP12905
Authors: Volker Nocke; Nicolas Schutz
Abstract: 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 oligopoly distortions to consumer surplus and aggregate surplus, 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.
Keywords: multiproduct firms; aggregative game; oligopoly pricing; market power; horizontal merger; Herfindahl index
JEL Codes: L13; L40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Herfindahl index (HHI) (L19) | consumer surplus (D46) |
| Herfindahl index (HHI) (L19) | aggregate surplus (E10) |
| merger (G34) | market power (L11) |
| merger (G34) | consumer surplus (D46) |
| post-merger type (G34) | consumer surplus (D46) |
| myopic consumer-surplus-based merger approval policy (L49) | long-term benefits (J32) |