Search Costs, Demand-Side Economies and the Incentives to Merge under Bertrand Competition

J.L. Moraga González, V. Petrikaite

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

We study the incentives to merge and the aggregate implications of mergers in a Bertrand competition model where firms sell differentiated products and consumers search sequentially for satisfactory deals. When search frictions are substantial, firms have an incentive to merge and to retail their products within a single store, which induces consumers to begin their search there. Such a merger lowers the profits of the outsiders and may benefit consumers due to more efficient search. Overall welfare may even increase. If the merged entity limits itself to coordinating the prices of the constituent firms, merging may not be profitable. © 2013, RAND.
Original languageEnglish
Pages (from-to)391-424
JournalRand Journal of Economics
Volume44
Issue number3
DOIs
Publication statusPublished - 2013

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