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The Annals of Regional Science

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01.03.2015 | Original Paper

Privatization and merger in a mixed oligopoly with spatial price discrimination

verfasst von: Guangliang Ye, Wenbin Wu

Erschienen in: The Annals of Regional Science | Ausgabe 2/2015

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Abstract

This paper is the first to investigate the impact of the presence of a public firm on the profitability of two-firm mergers in a spatial price discrimination model. The presence of the public firm may increase the set of mergers for two private firms to profitably merge. Merger increases social welfare in the presence of a public follower alone. However, privatizing the public firm never increases social welfare.

Vorheriger Artikel A comparison of vector autoregressive forecasting performance: spatial versus non-spatial Bayesian priors

Nächster Artikel Barriers to cross-region research and development collaborations in Europe: evidence from the fifth European Framework Programme

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We use the SPD model because of its common occurrence and unique insights (Heywood et al. 2001; Thisse and Vives 1988). In SPD markets, a firm can charge a price as high as its adjacent rivals’ delivered cost and earn its profit by exploiting the difference between this price and its cost.

Heywood and McGinty (2011) consider cross-border mergers in a mixed oligopoly, but under a non-spatial model.

Results are robust to the presence of excluded profit-maximizing firms, because the binding no-jump condition remains the same from the excluded public firm rather than the excluded private firm.

The Economist, “Mutually assured existence: Public and private banks have reached a modus Vivendi,” May 13, 2010.

Following the literature, a merger can take place only between two adjacent firms.

The no-jump condition guarantees that the follower has no incentive to jump to the leader’s corner. So, the leader would choose the location where the follower gets the same profit by jumping as by not jumping.

Note that the no-jump conditions from the private follower at the left corner are not binding.

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Heywood JS, Ye G (2013) Sequential entry and merger in spatial price discrimination. Ann Reg Sci 50:841–859CrossRef

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Matsumura T, Shimizu D (2010) Privatization waves. Manch Sch 78(6):609–625CrossRef

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Rothschild R, Heywood J, Monaco K (2000) Spatial price discrimination and the merger paradox. Reg Sci Urban Econ 30:491–506CrossRef

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Titel: Privatization and merger in a mixed oligopoly with spatial price discrimination
verfasst von: Guangliang Ye
Wenbin Wu
Publikationsdatum: 01.03.2015
Verlag: Springer Berlin Heidelberg
Erschienen in: The Annals of Regional Science / Ausgabe 2/2015
Print ISSN: 0570-1864
Elektronische ISSN: 1432-0592
DOI: https://doi.org/10.1007/s00168-015-0666-0

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