An Aggregative Games Approach to Merger Analysis in Multiproduct-Firm Oligopoly

Working Paper No. 24578 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,...

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Published inNBER Working Paper Series p. 24578
Main Authors Nocke, Volker, Schutz, Nicolas
Format Paper
LanguageEnglish
Published Cambridge National Bureau of Economic Research, Inc 01.05.2018
Subjects
Acquisitions & mergers
Economic models
Economic policy
Game theory
Welfare
United States > US
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Abstract Working Paper No. 24578 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.
AbstractList Working Paper No. 24578 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.
Author Nocke, Volker
Schutz, Nicolas
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SubjectTerms Acquisitions & mergers
Economic models
Economic policy
Game theory
Welfare
Title An Aggregative Games Approach to Merger Analysis in Multiproduct-Firm Oligopoly
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