Ej. Dockner et A. Gaunersdorfer, On the profitability of horizontal mergers in industries with dynamic competition, JPN WORLD E, 13(3), 2001, pp. 195-216
The consequences of horizontal mergers on firms' profits are traditionally
studied within a static Cournot framework. In such a setting, the merger is
modeled as an exogenous change in market structure. One of the key results
in this literature is that if firms compete in a homogeneous product marke
t, mergers will in general be unprofitable to the merging firms. In this pa
per, we analyze horizontal mergers of firms that compete in a dynamic Courn
ot market. We find unlike in static Cournot models that mergers are always
profitable independent of the number of merging firms. While firms have an
incentive to merge, welfare in the economy, however, does not increase sinc
e the gain in producer surplus does not offset the loss in consumer surplus
due to increased prices. (C) 2001 Elsevier Science B.V. All rights reserve
d.