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| Author: | Farrell, J. Shapiro, C. |
| Title: | Horizontal mergers: an equilibrium analysis |
| Journal: | American Economic Review
1990 : MAR, VOL. 80:1, p. 107-126 |
| Index terms: | EQUILIBRIUM ANALYSIS MERGERS WELFARE PRICES |
| Language: | eng |
| Abstract: | Mergers between large firms in the same industry have long been a public policy concern in the USA. Horizontal mergers are analyzed in Cournot oligopoly. General conditions are found under which such mergers raise price, and it is shown that any merger not creating synergies raise price. A procedure is developed for analyzing the effect of a merger on rivals and consumers, and thus provide sufficient conditions for profitable mergers to raise welfare. Traditional merger analysis can be misleading in its use of the Herfindahl Index. The analysis presented here stresses the output responses of large firms not participating in the merger. The analysis of the output and welfare effects of mergers is based on cost and demand functions. |
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