POST‐MERGER PRODUCT REPOSITIONING^*

Abstract

This paper analyzes the effects of mergers between firms competing by simultaneously choosing price and location. Products combined by a merger are repositioned away from each other to reduce cannibalization, and non-merging substitutes are, in response, repositioned between the merged products. This repositioning greatly reduces the merged firm's incentive to raise prices and thus substantially mitigates the anticompetitive effects of the merger. Computation of, and selection among, equilibria is done with a novel technique known as the stochastic response dynamic, which does not require the computation of first-order conditions.

Assessing the Effects of Antitrust Enforcement in the United States

“…With competition among bidders in an oral auction, the rivals of merging bidders are entirely unaffected. Finally, with competition in both price and product characteristics, Gandhi et al (2008) show that the rivals of the merging firms can suffer a profit reduction.…”

Vertical differentiation and collusion: Pruning or proliferation?

“…4 The dilemma between pruning and proliferation under mergers has received scarce attention. Some noticeable exceptions are the analysis by Lommerud and Sorgard (1997), Gandhi et al (2008) and Chen and Schwartz (2013). 5 Our analysis is somehow related to the one developed by Martinez-Giralt and Neven (1988), later discussed by Tabuchi (2012).…”

Vertical Differentiation and Collusion: Cannibalization or Proliferation?

“…While the empirical evidence provides many real-life examples of pruning when the main driver of di¤erentiation among product is quality, a conclusive argument does not emerge from casual observations when goods are mostly horizontally di¤erentiated. 13 In order to answer this question, we consider the circular model of spatial competition a là Salop (1979). By means of an example, we show that contrary to the …ndings occurring in the above model of vertical di¤erentiation, pruning does not always prevail when competition develops along a circle, and we discuss the underlying economic reasons.…”

“…3 The dilemma between cannibalization and proliferation under mergers has received scarce attention. Some noticeable exceptions are the analysis by Lommerud and Sorgard (1997), Gandhi et al (2008) and Chen and Schwartz (2013).…”