Spatial price discrimination and the merger paradox

Delivered Pricing and Merger with Demand Constraints

“…Reitzes and Levy (1995) show that such a merger increases the prices and profits of the participants but leaves those of all other firms unchanged. Rothschild et al (2000) confirm this finding in the case of two firms merging in a three firm market and also examine the effects of merger on the excluded rival. Rothschild et al (2000) confirm this finding in the case of two firms merging in a three firm market and also examine the effects of merger on the excluded rival.…”

“…We model a three-stage game as in Rothschild et al (2000). In stage one, three firms enter the market simultaneously and choose locations.…”

“…The unconstrained case follows from Figure 1 and is taken from Rothschild et al (2000). The unconstrained case follows from Figure 1 and is taken from Rothschild et al (2000).…”

Should alternative mergers or acquisitions be considered by antitrust authorities?

“…5 Horizontal mergers under spatial competition have been previously addressed in the literature. Rothschild et al (2000), Rothschild (2000) and Heywood et al (2001) used the well-known Hotelling model to study the relationship between merger activity and location choice, while Levy and Reitzes (1992) and Brito (2003) have analyzed the impact of mergers and the incentives to merge in the circular model. Along similar lines, Braid (1999) analyzes the impact of mergers, considering differentiation along not one but two dimensions.…”

Efficiency‐enhancing horizontal mergers in spatial competition

“…Some of them assume a circle instead of a line, which could be assumed in this paper without changing the qualitative results (and making only minor changes to the quantitative results, as long as there are more than three firms around the circle). There are also papers that examine horizontal mergers with spatial price discrimination, assuming that firms bear transportation costs and that there is a Nash equilibrium in delivered price schedules, includingEaton and Schmitt (1994),Reitzes and Levy (1995),Heywood et al (2001),Heywood and Ye (2013), andRothschild et al (2000). See Chapter 11 ofPepall et al (2011) for a mathematical textbook treatment of the economics of horizontal mergers.5 The reason for choosing a solution of this form is almost identical to the reason for choosing a solution of the form (6) in Section 2, as explained in footnote 3.6 These results for r = R are numerically identical to a case in Section 4 ofBraid (1986), who assumes even spacing, and linear instead of quadratic transportation costs.…”