| NOTAS: | "This paper studies the interaction between horizontal mergers and price
discrimination by endogenizing the merger formation process in the context of
a repeated purchase model with two periods and three firms wherein firms
may engage in Behaviour-Based Price Discrimination (BBPD). From a merger
policy perspective, this paper's main contribution is two-fold. First, it shows
that when firms are allowed to price discriminate, the (unique) equilibrium
merger gives rise to significant increases in profits for the merging firms (the
ones with information to price-discriminate), but has no effect on the outsider
firm's profitability, thereby eliminating the so called `free-riding problem'."
Second, this equilibrium merger is shown to increase industry profits at the
expense of consumers' surplus, leaving total welfare unaffected. This then
suggests that competition authorities should scrutinize with greater zeal
mergers in industries where firms are expected to engage in BBPD. |
