Competition and Merger in Network Economy

This thesis is concerned about firm’s merger and competition behavior in modern<br/>economies in which networks are ever-more important and how to optimize merger<br/>policy when network externalities present. As a demand-side economics of scale,<br/>network externalities bring benefit to consumers through merger and acquisition if the<br/>products from different firms are incompatible. Hence, a merger, which is both<br/>socially optimal and privately profitable, can exist without considering the<br/>supply-side economies of scale. Merger policy should be revised to be able to<br/>recognize these “good” mergers and encourage them. Firm’s incentive to merge is<br/>enlarged by network effect because merged entities can benefit from a larger network,<br/>which increases the demand for their product. Moreover, merger and acquisition in<br/>network world give the merged entities an advantage in competition over the firms<br/>who stand outside the merger. One of the explanations for this advantage is merged<br/>entity may inherit indirect network resources, for example complementary products<br/>producers, from all merged firms, since the mobile of these resources are costly and<br/>slow. Acquiring more firms brings more indirect network resources to merged entity,<br/>which makes the products of merged entity more valuable to the consumers. Thus the<br/>merged entity can charge a higher price or squeeze more market share. Merged entity<br/>can obtain locked-in consumers from all merged firms is another explanation of the<br/>advantage. For some information products, such as TV subscription, internet access<br/>and mobile phone service, consumers need to sign a contract with the service provider<br/>and are locked by these contracts for a fixed period. Merged entity may inherit these<br/>locked-in consumers and show a larger initial network to the consumers who are not<br/>locked at the beginning of the competition. Social planner should be cautious to the<br/>merger in network world because network externalities magnify the power of the<br/>merger, which may be utilized by the firms to get dominant position.

Name dc:type.qualificationname

Ph.D.

Level dc:type.qualificationlevel

doctoral

Grantor dc:publisher.institution

University of Southampton

Year dc:date.issued

2010

Author dc:creator

• Li, Ke

Advisor dc:contributor.advisor

• Mason, Robin