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. We find that 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. Synergies may lower consumer surplus. A merger may benefit some outsiders but harm others. Mergers are more readily profitable when an industry exhibits multiple qualities. A Herfindahl-Hirschman Index constructed using data on total sales may give a misleading assessment of firms' market power.

Multiproduct Mergers and the Product Mix in Domestic and Foreign Markets

“…Instead, we take the perspective that a merger has been accepted in order to analyze and understand the adjustments that take place within the merged entity following this event. This distinguishes our work from theoretical contributions of multiproduct mergers in industrial organization such as Nocke and Schutz (2018a) and Johnson and Rhodes (2021). Furthermore, by studying the withinfirm adjustments of the product mix, this work complements recent contributions that examine the impact of mergers on innovation and growth (e.g., Cunningham et al, 2021;Fons-Rosen et al, 2021).…”

“…Similar patterns are observed, for example, in Brazil, France, Chile, and India (seeArkolakis et al (2021),Fontagné et al (2018),Alvarez et al (2013), andGoldberg et al (2010), respectively).2 An exception to the assumption of single-product firms isNocke and Schutz (2018b). Moreover, MPFs are well established in the literature on merger simulation (e.g.,Mazzeo et al, 2018;Garrido, 2020;Johnson and Rhodes, 2021) and the upward-pricing pressure of mergers (seeFarrell and Shapiro (2010), among others).…”

Horizontal Merger Analysis with Endogenous Product Range Choice

“…Each SP …rm, expecting less competition, charges a higher price. Furthermore, substituting (14) back into (10), the aggregate quantity in equilibrium is pinned down by the zero-pro…t condition of the SP …rms:…”

Multiproduct mergers and quality competition

“…It is unfortunately difficult to provide general conditions under which a merger increases Z 2 by enough that overall consumer surplus goes up. However, our working paper version Johnson and Rhodes (2021) provides results for two special cases. First, we examine a merger between two firms where one of the insiders is inefficient and so has a very small market share.…”