Analysis of Merger Control in a Network Products Market

Abstract

Using a horizontally differentiated three‐firm model, we consider horizontal mergers and antitrust policy in a network products market, where network externalities and compatibilities between products and services are observed. In particular, we focus on the role of merger‐related network compatibility. That is, if the degree of the net degree of merger‐related network compatibility is larger than the degree of product substitutability, consumer surplus is higher than in the premerger case. In this case, the proposed merger is allowed by antitrust authorities based on a consumer welfare standard. Furthermore, relating to a merger externality on an outsider, we examine the American Online and Time Warner case.