An Aggregative Games Approach to Merger Analysis in Multiproduct-Firm Oligopoly
Using an aggregative games approach, we analyze horizontal mergers in a model of multiproduct-firm price competition with nested CES or nested logit demands. We show that the Herfindahl index provides an adequate measure of the welfare distortions introduced by market power, and that the induced change in the naively-computed Herfindahl index is a good approximation for the market power effect of a merger. We also provide conditions under which a merger raises consumer surplus, and conditions under which a myopic, consumer-surplus-based merger approval policy is dynamically optimal. Finally, we study the aggregate surplus and external effects of a merger.
We thank seminar participants at the London School of Economics for helpful comments. We gratefully acknowledge financial support from the Deutsche Forschungsgemeinschaft (DFG) through CRC TR 224. The first author also thanks the European Research Council (ERC) for generous financial support through grant no. 313623. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.