A Note on the Welfare Effects of Horizontal Mergers in
Asymmetric Linear Oligopolies

Steven Heubeck

and

Donald J. Smythe

and

Jingang Zhao

This paper extends Farrell and Shapiro (1990) and Levin (1990) by providing necessary and sufficient conditions for horizontal mergers to be both profitable and welfare-enhancing when market demand and firmsí costs are linear. We show that profitable, welfare-enhancing mergers are likely to involve firms whose combined pre-merger market shares exceed 50%, and that mergers may be profitable and welfare-enhancing even when they do not generate any direct cost efficiencies. Our results suggest that any approach to evaluating the welfare effects of horizontal mergers which does not account for industry-wide strategic effects is seriously flawed.

Key Words: Horizontal merger; welfare effect; Antitrust policy.
JEL Classification Numbers: L10, L13, L40.