Welfare‐Reducing Mergers in Differentiated Oligopolies with Free Entry*

Abstract

Antitrust authorities regard the possibility of post‐merger entry and merger‐generated efficiencies as two factors that may counteract the negative effects of horizontal mergers. This article shows that in differentiated oligopolies with linear demand, all entry‐inducing mergers harm consumer welfare. This is because if there is entry following a merger, it implies that the merger‐generated efficiencies were not sufficiently large. Mergers which induce exit, owing to sufficiently high cost savings, always improve consumer welfare.