Equilibrium and strategies of horizontal mergers inasymmetric differentiated oligopoly

Abstract

Master of PhilosophyBuilding an asymmetric differentiated goods quantity competition model, the present paper explores how substitutability of products, one of the factors affecting the unilateral effect, determines horizontal mergers and acquisitions equilibrium and strategies. It seems intuitively obvious that the merger between firms with goods that are sufficiently close substitutes can be more profitable. However, this thesis's counter-intuitive results show that, for some parameter values, a merger is more profitable for the merging firm when the target firm produces a distant substitutes (i.e., when it is not the closest competitor to the acquiring firm in the market).The theoretical analysis shows that to merge with firm with low substitute parameter is more profitable provided that target firms are close enough and the both of them are distant enough from merging firms. The results in Cournot model and Bertrand have some similarities, for example, they both harm to consumer surplus and the optimal strategy harms most. For the difference, for example, in Coumot model, whenever it is profitable to merge with a distant competitor, it is the optimal strategy, while in Bertrand model, it depends. The paper also extends the classical "horizontal merger paradox" to a setting of asymmetric differentiated oligopoly.Keywords: asymmetric oligopoly; horizontal merger; merger paradox. DECLARATION I declare that this is an original work based primarily on my own research, and I warrant that all citations of previous research, published or unpublished, have been duly acknowledged.