Merger and Free Riders in Spatial Markets

Authors:
James D. Reitzes and David T. Levy
Working Paper:
178

Prior analyses have found little incentive for merger in the absence of efficiency gains. Either merger is unprofitable, or outside firms earn higher profits than the merged parties. We examine merger in a model with differentiated consumers, and find that mergers are profitable. Moreover, the free-rider problem is largely eliminated under uniform pricing; it is completely eliminated under discriminatory pricing.