Multiproduct mergers and quality competition

Abstract

We investigate mergers in markets where quality differences between products are central and firms may reposition their product lines by adding or removing products of different qualities following a merger. Such mergers are materially different from those studied in the existing literature. Mergers without synergies may exhibit a product-mix effect which raises consumer surplus, but only when the pre-merger industry structure satisfies certain observable features. Postmerger synergies may lower consumer surplus. The level of, and changes in, the Herfindahl-Hirschman Index may give a misleading assessment of how a merger affects consumers. A merger may benefit some outsiders but harm others.

The Impact of Private Label Introduction on Assortment, Prices, and Profits of Retailers*

“…They find that merging firms reduce the number of products to strengthen core competencies in particular segments of the market. Other important studies that address repositioning and cannibalization effects include Berry and Waldfogel [2001], Berry et al [2004], Draganska et al [2009], Einav [2010], and Johnson and Rhodes [2021].…”