Knowledge that Transforms

We analyze horizontal mergers in Cournot oligopoly. We find general conditions under which such mergers raise price, and show that any merger not creating synergies raises price. We develop a procedure for analyzing the effect of a merger on rivals and consumers and thus provide sufficient conditions for profitable mergers to raise welfare. We show that traditional merger analysis can be misleading in its use of the Herfindahl Index. Our analysis stresses the output responses of large firms not participating in the merger.