The Study Of The Welfare Effect Of Horizontal Mergers With Different Product

The motives of horizontal mergers contain economies of scale, synergy, and monopoly mainly. They cause different social welfare effect: the first and the second motive can improve both merged enterprise's welfare and social welfare; the third one may harm customers, rivals and other benefit counterparts'welfare, thus harm social welfare probably.Because of monopoly distortions, profit distribution, transaction costs and other factors, as well as practical experiences, it is necessary to use customer welfare standard to judge horizontal mergers. Ignoring the customer's diversified demands, if there is no change in price after the horizontal merger, it means the customer welfare isn't harmed.In the market with homogeneous product, the companies compete in output and it forms a Cournot Equilibrium. While in the market with different product, the companies compete in price and it forms a Bertrand Equilibrium, in the spatial model's view. Every product in the market can be seen as a linear combination of homogeneous product and different product. So a product can be seen as a weighed average of homogeneous product and the most different product, and the weight depends on the level of difference. Therefore, the reasonable welfare standard to judge horizontal mergers should combine the results of homogeneous product and different product models.In the market with low concentration and abundant competition, the result of the improved different product model is similar to that of homogeneous product model, so they can be interchangeable. While in the market with high concentration even oligopoly, the welfare standard concluded by the improved different product model is more rigid. Compared with the HHI method in The Horizontal Merger Guidelines (1992), the method of the paper is clearer in economic meaning and closer to the practice.Nowadays most of horizontal mergers in China are still at junior stage, and the good effect of horizontal merger is larger than the bad one. However, in the market with high concentration especially involved in administration monopoly, the horizontal mergers may harm customer welfare. Therefore, the antitrust act of China should distinguish all kinds of mergers. In most industries with competition, horizontal mergers are benefit to economy efficiency and social welfare, so the antitrust policy should be mild. While in the industries with high concentration especially involved in administration monopoly, the large-scale horizontal mergers tend to harm customer welfare, so the antitrust policy should be rigid.