Horizontal Mergers: Comment
Abstract
Joseph Farrell and Carl Shapiro (1990a) present an interesting and elegant analysis of horizontal mergers in the context of a Cournot model under quite general demand and cost conditions. One section of their paper deals with the effects of mergers on price or consumer welfare. In it they show that, in a Cournot model, mergers that do not lower costs always raise price and that mergers that lower costs still raise price unless they lower costs quite a lot. These results are much more general than anything in the prior literature. Another section of the paper deals with the effects of mergers on nonmerging firms and consumers, which Farrell and Shapiro term external. With some minor additional assumptions, they show that a merger is externally welfare-enhancing if (but not only if)
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