Mergers, Entry, and Consumer Welfare

Abstract

We analyze mergers and entry in oligopoly models of differentiated-products price competition. Under logit or constant elasticity of substitution demands, entry that restores pre-merger consumer surplus renders merger unprofitable. Thus, by revealed preference, it can be appropriate to infer entry barriers in merger review. The result extends to nested and random coefficients demand systems unless the entrant is a distant competitor of the merging firms. We develop modeling frameworks to guide empirical analysis in settings where theory is not dispositive. Applying these to the T-Mobile/Sprint merger, we find the Court may have erred in treating DISH as a merger-induced entrant.