General Analysis of Horizontal Merger

Abstract

A new method of proof is presented for the existence of a unique Cournot equilibrium in oligopoly with a merged entity and independent firms. The method is then applied to derive price-enhancing effect of an increase in the number of merged firms. On the basis of the existence proof and stability condition, a sufficient condition is derived for an increase in the number of merged firms to be profitable. This condition is illustrated for a simple case of linear demand and identical quadratic cost functions. Finally, a numerical example is given.