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Title:Mergers in imperfectly segmented markets PDF Logo
Authors:Baake, Pio
Wey, Christian
Issue Date:2009
Series/Report no.:Discussion papers // German Institute for Economic Research 919
Abstract:We present a model with firms selling (homogeneous) products in two imperfectly segmented markets (a high-demand and a low-demand market). Buyers are mobile but restricted by transportation costs, so that imperfect arbitrage occurs when prices differ in both markets. We show that equilibria are distorted away from Cournot outcomes to prevent consumer arbitrage. Furthermore, a merger can lead to an equilibrium in which only the high-demand market is served. This is more likely (i) the lower consumers' transportation costs and (ii) the higher the concentration of the industry. Therefore, merger incentives are much larger than standard analysis suggests.
Subjects:Imperfect market segmentation
oligopoly
price discrimination
consumer arbitrage
mergers
JEL:D43
L13
L41
Document Type:Working Paper
Appears in Collections:Publikationen von Forscherinnen und Forschern des DIW
DIW-Diskussionspapiere

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