Spatial price discrimination and the merger paradox

A familiar result in the literature on mergers is that the principal benefi ciaries from such activity are the firms which are excluded from participat ion. The possible existence of this 'merger paradox' contrasts strongly wit h the frequently expressed view that merger is anti-competitive. This paper examines the question within the context of a model of spatial competition in which firms choose their locations in anticipation of forming a merger, and practise price-discrimination. We allow for differences in firms' shar es in the benefits of merger, and for the possibility that the firms will a ttach probabilities to merger formation. (C) 2000 Elsevier Science B.V. All rights reserved.