Horizontal mergers and collusive behavior

In the Industrial Organization literature, it is generally felt that mergers hurt consumers; not only because of the increased industrial concentration they effect, but also because collusion becomes more likely. In this paper we show that, at least in one important case, this intuition is misguided. If a tacitly collusive agreement enforced by trigger strategies is not initially sustainable, mergers will tend to reduce the chance that it becomes sustainable in the future. This is so because the threat point implicit in the agreement becomes more favorable for outsiders.