Horizontal mergers of price-setting firms with sunk capacity costs

  • Baik K
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We examine the profitability of a horizontal merger and its effects on the outsiders' profits and industry prices, in a market for a homogeneous product where firms with sunk capacity costs engage in price competition. We show that, unlike previous studies, a merger can hurt the outsiders, the postmerger prices can be lower than thepremerger prices, and a merger can reduce the joint profits of the participating firms even in a static model of price competition. © 1995.

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  • Kyung Hwan Baik

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