Monopolization Through Acquisitions in Multimarket Oligopolies (Replaced by CentER DP 2011-112)

A. Ray Chaudhuri

Research output: Working paperDiscussion paperOther research output

Abstract

This paper shows that, under Cournot competition, monopolization through acquisitions is more likely to occur in industries where firms serve multiple segmented markets rather than a single integrated market, given that cost functions are strictly convex. Under segmented markets, within a two-country model, the paper shows that if a multinational firm acquires a local rm in one of the markets, the product price in that market rises but the product price in the other falls. This decreases the profit that each local firm would obtain if it unilaterally remained outside a merger to monopoly, making it cheaper to acquire. This reverses the well established result in the existing merger literature, which focuses on the case where an industry serves a single integrated market. Moreover, the paper shows that the sum of consumer surplus across the countries may rise in response to an acquisition despite the absence of any synergies, which existing literature shows is not possible in a single integrated market.
Original languageEnglish
Place of PublicationTilburg
PublisherMicroeconomics
Number of pages27
Volume2010-96
Publication statusPublished - 2010

Publication series

NameCentER Discussion Paper
Volume2010-96

Fingerprint

Monopolization
Oligopoly
Integrated
Industry
Segmented markets
Mergers
Two-country model
Monopoly
Multinational firms
Cost function
Profit
Synergy
Consumer surplus
Cournot competition

Keywords

  • monopolization
  • horizontal mergers
  • competition policy
  • Cournot competition
  • economic integration

Cite this

Ray Chaudhuri, A. (2010). Monopolization Through Acquisitions in Multimarket Oligopolies (Replaced by CentER DP 2011-112). (CentER Discussion Paper; Vol. 2010-96). Tilburg: Microeconomics.
Ray Chaudhuri, A. / Monopolization Through Acquisitions in Multimarket Oligopolies (Replaced by CentER DP 2011-112). Tilburg : Microeconomics, 2010. (CentER Discussion Paper).
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abstract = "This paper shows that, under Cournot competition, monopolization through acquisitions is more likely to occur in industries where firms serve multiple segmented markets rather than a single integrated market, given that cost functions are strictly convex. Under segmented markets, within a two-country model, the paper shows that if a multinational firm acquires a local rm in one of the markets, the product price in that market rises but the product price in the other falls. This decreases the profit that each local firm would obtain if it unilaterally remained outside a merger to monopoly, making it cheaper to acquire. This reverses the well established result in the existing merger literature, which focuses on the case where an industry serves a single integrated market. Moreover, the paper shows that the sum of consumer surplus across the countries may rise in response to an acquisition despite the absence of any synergies, which existing literature shows is not possible in a single integrated market.",
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Ray Chaudhuri, A 2010 'Monopolization Through Acquisitions in Multimarket Oligopolies (Replaced by CentER DP 2011-112)' CentER Discussion Paper, vol. 2010-96, Microeconomics, Tilburg.

Monopolization Through Acquisitions in Multimarket Oligopolies (Replaced by CentER DP 2011-112). / Ray Chaudhuri, A.

Tilburg : Microeconomics, 2010. (CentER Discussion Paper; Vol. 2010-96).

Research output: Working paperDiscussion paperOther research output

TY - UNPB

T1 - Monopolization Through Acquisitions in Multimarket Oligopolies (Replaced by CentER DP 2011-112)

AU - Ray Chaudhuri, A.

N1 - Pagination: 27

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N2 - This paper shows that, under Cournot competition, monopolization through acquisitions is more likely to occur in industries where firms serve multiple segmented markets rather than a single integrated market, given that cost functions are strictly convex. Under segmented markets, within a two-country model, the paper shows that if a multinational firm acquires a local rm in one of the markets, the product price in that market rises but the product price in the other falls. This decreases the profit that each local firm would obtain if it unilaterally remained outside a merger to monopoly, making it cheaper to acquire. This reverses the well established result in the existing merger literature, which focuses on the case where an industry serves a single integrated market. Moreover, the paper shows that the sum of consumer surplus across the countries may rise in response to an acquisition despite the absence of any synergies, which existing literature shows is not possible in a single integrated market.

AB - This paper shows that, under Cournot competition, monopolization through acquisitions is more likely to occur in industries where firms serve multiple segmented markets rather than a single integrated market, given that cost functions are strictly convex. Under segmented markets, within a two-country model, the paper shows that if a multinational firm acquires a local rm in one of the markets, the product price in that market rises but the product price in the other falls. This decreases the profit that each local firm would obtain if it unilaterally remained outside a merger to monopoly, making it cheaper to acquire. This reverses the well established result in the existing merger literature, which focuses on the case where an industry serves a single integrated market. Moreover, the paper shows that the sum of consumer surplus across the countries may rise in response to an acquisition despite the absence of any synergies, which existing literature shows is not possible in a single integrated market.

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KW - horizontal mergers

KW - competition policy

KW - Cournot competition

KW - economic integration

M3 - Discussion paper

VL - 2010-96

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BT - Monopolization Through Acquisitions in Multimarket Oligopolies (Replaced by CentER DP 2011-112)

PB - Microeconomics

CY - Tilburg

ER -

Ray Chaudhuri A. Monopolization Through Acquisitions in Multimarket Oligopolies (Replaced by CentER DP 2011-112). Tilburg: Microeconomics. 2010. (CentER Discussion Paper).