Pro-competitive horizontal merger with cost reducing investments and network externalities

Banerjee, Swapnendu; Mukherjee, Arijit; Poddar, Sougata

Abstract

We show that a merger can be pro-competitive in an industry with horizontally differentiated network goods and cost reducing investments. If there is firm-specific (industry-wide) network compatibility, the merged firm may produce all the products or one product (the merged firm produces all the products). Under both firm-specific and industry-wide compatibilities, merger may increase consumer surplus even for weak network externalities if the products are not close substitutes. In the case of firm-specific (industry-wide) network compatibility, there are situations where merger reduces (increases) consumer surplus under network externalities but increases (reduces) consumer surplus under no network externality. Hence, the antitrust authorities may (may not) need to be overly concerned about mergers in the presence of network externalities if there is firm-specific (industry-wide) network compatibility.

Citation

Banerjee, S., Mukherjee, A., & Poddar, S. (2025). Pro-competitive horizontal merger with cost reducing investments and network externalities. Economic Theory Bulletin, https://doi.org/10.1007/s40505-024-00285-7

• Journal Article Type: Article
• Acceptance Date: Dec 20, 2024
• Online Publication Date: Jan 24, 2025
• Publication Date: Jan 24, 2025
• Deposit Date: Jan 15, 2025
• Publicly Available Date: Jan 25, 2026
• Journal: Economic Theory Bulletin
• Electronic ISSN: 2196-1093
• Publisher: Springer Verlag
• Peer Reviewed: Peer Reviewed
• DOI: https://doi.org/10.1007/s40505-024-00285-7
• Keywords: Consumer surplus; Investment; Merger; Network; Product differentiation JEL Classifications D43; G34; L00; O30
• Public URL: https://nottingham-repository.worktribe.com/output/44229378
• Publisher URL: https://link.springer.com/article/10.1007/s40505-024-00285-7
• Additional Information: Received: 21 May 2024; Accepted: 20 December 2024; First Online: 24 January 2025; : ; : None.