Merger efficiencies, entry, and consumer welfare

Senior Vice President and Head of Compass Lexecon's Lisbon office, Helder Vasconcelos, co-authored a paper alongside Duarte Brito for Economics Letters, exploring the consumer welfare effects of mergers, revealing the intricate interplay between merger-induced efficiency gains, post-merger entry, and consumer surplus.

This article was originally published in Economics Letters here. The views expressed in this paper are the sole responsibility of the authors and cannot be attributed to Compass Lexecon or any other parties.

Abstract

This paper investigates the impact of mergers on consumer welfare within a Cournot model, considering mergers driven by anticipated efficiency gains and potential post-merger entry. In this framework, we demonstrate that: (i) modest efficiencies can make both merger and entry beneficial, benefiting consumers; (ii) moderate efficiencies may deter entry, harming consumers due to the merger; and (iii) significant efficiencies may discourage entry but lead to lower prices, benefiting consumers. This result, therefore, embodies an important policy implication that assessing the overall effect of a merger on consumer surplus requires evaluating merger-specific synergies alongside the likelihood of post-merger entry.

Read the full article here