Horizontal mergers under localized competition

The purpose of this thesis is to analyse the anti-competitive effects of horizontal mergers for sellers of differentiated products under localized competition. The results of the symmetric, simultaneous price-quality Nash equilibrium are first established for the n-neighbour firm oligopoly game based on the spatial (circular) framework with quadratic transport costs t. Each firm incurs a constant marginal cost, and a fixed (quadratic) cost of quality level to produce its own single-product variant.; The generalized spatial merger model consists of an asymmetric price-quality Nash equilibrium profit-maximizing strategy for a subset of n-neighbour firms. The corporate authority of the multi-product firm M faces a set of q, single-product competitors while it maximizes the joint profit of its n-neighbour firms with respect to price only, and decentralizes the choice of quality levels to its member firms for their product variants. The set of q, rival firms, each acting under Nash price-quality behaviour, simultaneously set a price and a quality level for its own single-product variant. In equilibrium, a large (n ≥ 7) multi-product firm M exploits its physically-connected market area by setting an asymmetric price-quality strategy that creates an isolated hinterland for an "inner core" set of its firms. One result of such strategic behaviour is the merged firm M effectively wards-off the price-quality competition from its peripheral rivals, and it shields the inner core firms from the spread of the price-quality war contagion. It is able to reap the maximum amount of surplus to attain the highest post-merger profit of all firms within an industry, for n + q ≥ 5 firms. The pattern associated with the price-quality policy chosen by the multi-product firm M for its equi-distantly located pair-wise member firms is called the symmetric cascading effect.; The second merger model examined is a two-neighbour firm Nash price-quality game in which the bi-variant merged firm M controls both the price and quality of its two product variants to maximize joint profits. One result of the asymmetric Nash price-quality equilibrium outcome is a higher post-merger profit for a merged firm M's centralized price-quality strategy, relative to a merged firm that chooses a decentralized strategy. Numerical simulation results of the total welfare equilibrium outcome for both types of Nash merger models (decentralized and centralized) compare the levels of social inefficiency that may arise in an economy.; The third model introduces a merger between two, non-neighbour firms under price-quality Stackelberg behaviour. The asymmetric Stackelberg price-quality strategy proves to be profit-maximizing for a set of two, non-neighbouring firms whereas the same set of firms under Nash behaviour would never merge. The Stackelberg bi-product firm M, as leader, controls both the prices and the quality levels to maximize its joint profit, given the q followers' independent choices of prices and qualities of their single-product variants. The final model presented is a generalized price-quality Stackelberg merger among n-neighbour firms. The multi-product Stackelberg leader chooses prices of its n product variants to maximize joint profits and delegates the quality choice to its n-member firms, subject to the independent price and quality choices made by the q single-product follower firms. Each of the Stackelberg merger models is provided with comparative numerical simulations for the total welfare equilibrium outcome of an economy.