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Horizontal Mergers in a Differentiated Cournot Oligopoly

Using a standard differentiated goods quantity competition setting, we show three facts about horizontal two-firm mergers that are not true for a homogeneous goods Cournot market. First, merger of two firms is profitable for the merging firms provided that goods are sufficiently distant substitutes. Second, merging of two firms can lead to more two-firm mergers. Third, an initially non-profitable two-firm merger can occur in anticipation of subsequent mergers. These facts imply that mergers are more likely to occur in differentiated goods markets than in homogeneous goods markets.