Edited by Manfred Neumann and Jürgen Weigand
Chapter 9: Horizontal concentration, endogenous fixed costs, efficiency and merger control
Mergers giving rise to horizontal concentration typically yield two opposing results, increased monopoly power and the likelihood of lower costs. Mergers may thus be motivated either by the intent to exercise monopolistic market power or they follow from indivisibilities yielding efficiencies or by both. Even where mergers are motivated by the search for efficiency the resulting rise of their market share will inevitably entail an increase in monopolistic market power, called unilateral effects. The ensuing increase in horizontal concentration may be also conducive to co-ordinated effects. Arguably, following a merger, if only a few rivals remain, market dominance may facilitate tacit collusion since firms are aware of each other’s strategy and conscious parallelism ensues. This chapter focuses primarily on unilateral effects and only briefly comments on co-ordinated effects and their relevance for merger control. Regarding unilateral effects I will emphasize the fundamental role of indivisibilities and associated fixed costs. Since exploiting indivisibilities yields the potential to lower marginal costs and to achieve an increase in monopolistic market power and thus to enhance profitability, fixed costs associated with indivisibilities are likely to be used as instruments to further profitability.
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