Profitable mergers in a Cournot model of spatial competition

This paper investigates the profitability and locational effects of mergers when Cournot firms compete in spatially differentiated markets. A two-firm merger is generally profitable because the merged partners can coordinate their location decisions. The merged firm locates its plants outside the ma rket quartiles with distance from the market center being an increasing fun ction of the number of nonmerged firms remaining at the market center. Prof itable two-firm mergers reduce competitive pressure, leading to higher pric es and reduced consumer surplus. The merger increases total surplus by incr eased locational efficiency and the increased profits of the merged and non merged firms.