Mergers of Producers of Complements: How Autonomous Markets Change the Price Effects

Abstract

We analyze the price effects of mergers to monopoly between producers of complementary goods when there exists a fraction of consumers that value only one of the components. We show that customers are more likely to face a price decrease for the composite good under this setting than when such consumers do not exist. Copyright � 2009 The Authors. Journal compilation � 2009 Blackwell Publishing Ltd and The University of Manchester.

Endogenous Efficiency Gains from Mergers

“…The result that the innovation effects of mergers depend on spillovers, which was verified for all models studied in this article, is related to the literature on mergers of firms producing substitutes or complements (see, e.g., Economides and Salop ; Gaudet and Salant ; Brito and Catalão‐Lopes ), since a rival's R&D may act as a substitute or complement to own R&D, depending on the spillover level.…”

Does the Excess Entry Theorem Hold in a Differentiated Oligopoly?

“…In regard to the latter question, promoting mergers may be an effective means of eliminating firms. In the literature on mergers, Economides and Salop () and Brito and Catalão‐Lopes () show that in an oligopolistic market for composite goods that are made up of two components, the merger of all component producers can reduce the price of the composite goods. We note, however, that Salant et al .…”

“…In regard to the latter question, promoting mergers may be an effective means of eliminating firms. In the literature on mergers, Economides and Salop (1992) and Brito and Catalão-Lopes (2010) show that in an oligopolistic market for composite goods that are made up of two components, the merger of all component producers can reduce the price of the composite goods. We note, however, that Salant et al (1983), using a Cournot model with linear demand and a constant marginal cost, show that firms have an incentive to merge when the resulting entity would constitute more than 80 per cent of the market share, but such a 21 On the tragedy of the anticommons, see Buchanan and Yoon (2000) and Ohkawa et al (2012).…”

Asymmetric Complements in a Vertically Differentiated Market: Competition or Integration?

“…Finally, the monopolist can pursue an integration strategy, thus acquiring the rival at some acquisition price. We derive the equilibrium values in the whole set of possibilities and identify their main properties from 4 Alvisi et al (2011), assume that symmetric components are vertically differentiated and in Brito and Catalão-Lopes (2010) the asymmetric complementarity issue is faced in case of autonomous markets. 5 Incidentally, this discrepancy among producers' capabilities is quite often evoked to justify the increasing pattern of innovation by acquisition phenomenon taking place in the high-tech sector: well-established companies acquire innovating start-up firms as to exploit their innovations and capabilities, thereby avoiding to pursue internal research activities.…”

“…Alvisi et al . (), assume that symmetric components are vertically differentiated and in Brito and Catalão‐Lopes () the asymmetric complementarity issue is faced in case of autonomous markets.…”