Endogenous mergers in markets with vertically differentiated products
(2019) The B E Journal in Theoretical Economics — Vol. 19, n° 1 (2019)
Files
BEjournal.pdf
Open Access - Adobe PDF
- 899.13 KB
Details
- Authors
Marini, Marco A. 
- Abstract
- This paper studies the incentives of firms selling vertically differentiated products to merge. To this aim, we introduce a,three-stage game in which, at the first stage, three independent firms can decide to merge with their competitors via a sequential game of coalition formation and, at the second and third stage, they can optimally revise their qualities and prices, respectively. We study whether such binding agreements (i.e. full or partial mergers) can be sustained as subgame perfect equilibria of the coalition formation game, and analyze their effects on equilibrium qualities, prices and profits. We find that, although profitable, the merger-to-monopoly of all firms is not an outcome of the finite-horizon negotiation, where only partial mergers arise. Moreover, we show that all stable mergers always include the firm initially producing the bottom quality good and reduce the number of variants on sale.
- Affiliations
Citations
Gabszewicz, J. J., Marini, M. A., & Tarola, O. (2019). Endogenous mergers in markets with vertically differentiated products. The B E Journal in Theoretical Economics, 19(1). https://doi.org/10.1515/bejte-2017-0001 (Original work published 2019)