Multiproduct mergers and quality competition

Abstract

We investigate mergers in markets where quality differences between products are central and firms may reposition their product lines by adding or removing products of different qualities following a merger. Such mergers are materially different from those studied in the existing literature. Mergers without synergies may exhibit a product-mix effect which raises consumer surplus, but only when the pre-merger industry structure satisfies certain observable features. Post-merger synergies may lower consumer surplus. The level of, and changes in, the Herfindahl–Hirschman Index may give a misleading assessment of how a merger affects consumers. A merger may benefit some outsiders but harm others.

Replaces

Justin Pappas Johnson, and Andrew Rhodes, “Multiproduct Mergers and Quality Competition”, TSE Working Paper, n. 18-967, November 2018, revised February 2021.

Reference

Justin Pappas Johnson, and Andrew Rhodes, “Multiproduct mergers and quality competition”, The RAND Journal of Economics, vol. 52, n. 3, September 2021, pp. 633–661.