Mergers, entry, and consumer welfareClick here to read the full article online
We analyze mergers and entry in a differentiated products oligopoly model of price competition. Any merger that does not yield efficiencies is unprofitable if it induces entry sufficient to preserve pre-merger consumer surplus. Thus, mergers occur in equilibrium only if barriers limit entry. Mergers that increase consumer surplus can occur in equilibrium for specific magnitudes of efficiencies and post-merger entry, and these combinations are identified from pre-merger market shares. The entry costs that would rationalize post-merger entry similarly can be bounded using pre-merger market shares. An application to the T-Mobile/Sprint merger illustrates the theoretical framework.