Working Paper: CEPR ID: DP15830
Authors: Justin Johnson; Andrew Rhodes
Abstract: We investigate mergers in markets where quality differences between products are central and firms may reposition their product lines by adding or removing products of different qualities following a merger. Such mergers are materially different from those studied in the existing literature. Mergers without synergies may exhibit a product-mix effect which raises consumer surplus, but only when the pre-merger industry structure satisfies certain observable features. Post-merger synergies may lower consumer surplus. The level of, and changes in, the Herfindahl-Hirschman Index may give a misleading assessment of how a merger affects consumers. A merger may benefit some outsiders but harm others.
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JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| merger without synergies (G34) | reduction in aggregate output (E23) |
| reduction in aggregate output (E23) | raise price of low-quality good (D49) |
| raise price of low-quality good (D49) | harm consumers (D18) |
| merger may increase consumer surplus (D43) | pre-merger market structure satisfies certain observable conditions (D40) |
| pre-merger market structure satisfies certain observable conditions (D40) | beneficial product-mix effect (L21) |
| post-merger cost synergies (G34) | unfavorable product-mix effects (L21) |
| mergers may raise outsider profits (G34) | raise consumer surplus (D11) |
| merger can increase consumer surplus (D16) | HHI exceeds levels deemed harmful (L41) |