On comparing the profitability of horizontal mergers under Cournot and Bertrand competitions

Abstract

This paper reconsiders the comparison of horizontal two‐firm mergers in differentiated oligopolies, originally explored with the assumption that the merged firm produces a single product. By relaxing this assumption, our analysis presents a contrast to previous findings that suggested that a two‐firm merger is more likely under the Cournot competition than under the Bertrand competition. We find that the opposite holds true if the merged firm chooses to produce one or both products post‐merger. Moreover, we demonstrate that, in most circumstances, and under either the Cournot or Bertrand competition, the merged firm has an incentive to produce both products post‐merger.