Equilibrium mergers in a composite industry

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Cristina Pardo-Garcia (cristina.pardo-garcia@uv.es)
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No 410, Discussion Papers in Economic Behaviour from  University of Valencia, ERI-CES

Abstract: This industry is formed by single-component producers whose components are combined to create composite goods. When a given firm has the possibility of merging with either a complement or a substitute good producer, its equilibrium choice depends on the degree of product differentiation in the composite good market. A merger between complements, which allows for mixed bundling, only happens when composite goods are very differentiated. Private incentives do not always go along with social interests and the equilibrium merger can differ from the socially optimal merger. After a merger, outsiders have also the opportunity to react and merge to other outsiders or to join the previous merge.

Keywords: merger; composite goods; substitutes; complements; pricing strategies; countermerger (search for similar items in EconPapers)
JEL-codes: L13 L41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-ind and nep-mic
Date: 2010-06
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