How Merger Synergies Can Harm Consumers: A Defense of the Efficiencies Offense

This paper uses an aggregative games framework to predict consumer welfare when market structure is endogenously determined. Specifically, we characterize mergers whose synergies reduce consumer welfare by inducing rivals to exit. Our results apply to quantity competition among homogeneous products as well as price competition among multiproduct firms facing multinomial logit demand. Based on models calibrated to commonly used parameter values, we find that the synergies required to maintain consumer surplus can be much higher than those implied by traditional merger analysis. We also find that neither follow-on mergers nor subsequent entry necessarily eliminate the problem.