Unilateral Effects with Endogenous Quality
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Formal merger analysis typically ignores the possibility that both prices and quality levels may be endogenous. This paper extends the traditional analysis of mergers to include both quality and price effects. Based on simulations, we find that mergers can either raise or lower the quality levels of the merging firms; non-merging firms always raise their quality levels. We find that while the standard upward pricing pressure index is a good predictor of the qualitative results of merger simulations, the equivalent index for quality performs poorly.
KeywordsAntitrust Congestion Mergers
We would like to acknowledge helpful comments from Gregory Werden, Luke Froeb, Steve Tschantz, Michael Doane, Michael Williams, and Manuel Castro. In particular, we are grateful to Jonathan Lhost for providing independent checks of our calculations and to Grace K. Lee for research assistance.
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