Spatial competition and location with mergers and product licensing

This paper analyses mergers by Cournot firms producing differentiated produ cts in a spatial market with product licensing by the merged firms. Product licensing allows the merged firms to co-ordinate their locations. If the d egree of differentiation is not 'too low', a two-firm merger is more profit able for the merged firms than for the non-merged firms. The locational adv antage created by the merger leads to the additional profit from the merger being an increasing function of the number of firms in the market. A two-f irm merger generally increases total surplus and is therefore efficiency-en hancing. Moreover, there are circumstances in which every firm in the marke t wants to find a merger partner, consistent with the wave of mergers chara cteristic of many markets.