Working Paper: NBER ID: w24578
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 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.
Keywords: multiproduct firms; aggregative game; oligopoly; pricing; market power; horizontal merger; Herfindahl index
JEL Codes: D43; 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) | welfare distortions (D69) |
| change in the naively computed HHI (L19) | market power effect of a merger (L12) |
| merger (G34) | consumer surplus (D46) |
| post-merger type exceeds a unique cutoff value (C52) | consumer surplus (D46) |
| merger (G34) | aggregate surplus (E10) |
| unique cutoff type (C24) | aggregate surplus (E10) |
| merger below unique cutoff (D43) | aggregate surplus (E10) |
| myopic consumer-surplus-based merger approval policy (L49) | consumer surplus (D46) |
| myopic consumer-surplus-based merger approval policy (L49) | aggregate surplus (E10) |