Horizontal mergers with Bertrand competition and convex costs

Abstract

[eng] We discuss horizontal mergers in a homogeneous good industry where firms compete à la Bertrand withincreasing marginal production costs. We show that profitable mergers can occur even for lower post-merger prices with respect to the pre-merger scenario, thus implying an increase in consumer surplus. The driving force of the result is the ability of the merged entity cutting production costs by sharing the output among its plants. This output rationalization effect can compensate for the revenue loss due to the merged entityproducing less than the cumulated pre-merger production of the merging parties.