Mix-and-match divestitures and merger harm
Simon Loertscher, Leslie M Marx
The Japanese Economic Review | Wiley | Published : 2019
We consider the effects of a merger combined with a divestiture that mixes and matches the assets of the two pre‐merger suppliers into one higher‐cost and one lower‐cost post‐merger supplier. Such mix‐and‐match transactions leave the number of suppliers in a market unchanged but, as we show, can be procompetitive or anticompetitive depending on whether buyers are powerful and on the extent of outside competition. A powerful buyer can benefit from a divestiture that creates a lower‐cost supplier, even if it causes the second‐lowest cost to increase. In contrast, a buyer without power is always harmed by a weakening of the competitive constraint on the lowest‐cost supplier.
We thank Reiko Aoki and Luis Cabral (the editors) and an anonymous referee for helpful comments. This paper has benefitted from comments and suggestions by seminar audiences at the inaugural APIOC 2016 in Melbourne and at the APIOC 2017 in Auckland. Financial support from the Samuel and June Hordern Endowment and a University of Melbourne Faculty of Business Economics Eminent Research Scholor Grant is also gratefully acknowledged.