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

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 cha...

Full description

Saved in:
Bibliographic Details
Published inIDEAS Working Paper Series from RePEc
Main Authors Nocke, Volker, Schutz, Nicolas
Format Paper
LanguageEnglish
Published St. Louis Federal Reserve Bank of St. Louis 01.01.2018
Subjects
Acquisitions & mergers
Economic models
Online AccessGet full text

Cover

More Information
Summary: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.