Evaluating horizontal mergers in the presence of price promotions

Abstract

In this paper, I investigate the impact of a horizontal merger between firms that use price promotions. I find that after the merger, the merged firms increase their prices, but coordinate the promotions by never discounting their products simultaneously. The non-merged firm responds with a more aggressive pricing strategy, offering deeper and more frequent discounts. The effects of a merger on the firms’ profits and the consumer surplus are very small relative to the case with no promotions. These conclusions are not affected by the size of the change in market concentration or by the degree of substitutability between the merging products. Thus, the use of price promotions by the merging firms can be viewed as a mitigating factor by the antitrust authorities.