Mergers of complements, endogenous product differentiation and welfare

Han, Tien-Der; Mukherjee, Arijit

Abstract

The static analysis shows that a merger among complementary input suppliers or complementary patent holders benefits the consumers and the society by reducing the input prices. We show that the effects of a merger of complements are not so straightforward in a dynamic set up with endogenous product differentiation in the final goods market. The merger of complements reduces the total input prices and increases product differentiation. However, whether it increases or decreases consumer surplus and welfare depends on the market expansion following product differentiation, the number of merged input suppliers and the intensity of competition. Hence, in a dynamic setup with endogenous product differentiation, the antitrust authorities may need to be more careful about mergers of complements. Our analysis has also relevance for vertical mergers.

• Journal Article Type: Article
• Acceptance Date: Sep 1, 2023
• Online Publication Date: Sep 15, 2023
• Publication Date: 2023-11
• Deposit Date: Sep 18, 2023
• Publicly Available Date: Sep 16, 2024
• Journal: Mathematical Social Sciences
• Print ISSN: 0165-4896
• Electronic ISSN: 1879-3118
• Publisher: Elsevier BV
• Peer Reviewed: Peer Reviewed
• Volume: 126
• Pages: 30-41
• DOI: https://doi.org/10.1016/j.mathsocsci.2023.09.001
• Keywords: Complementary inputs; Consumer surplus; Merger; Patent pool; Product differentiation; Welfare
• Public URL: https://nottingham-repository.worktribe.com/output/25361803
• Publisher URL: https://www.sciencedirect.com/science/article/pii/S0165489623000768?via%3Dihub