Horizontal Mergers and Merger Waves in a Location Model

We consider sequential mergers in a spatial model with Cournot competition. This model is suitable for explaining the behaviour of some industries where several brands of the same product are delivered by plants. The automobile and oil product industries are examples. To discuss sequential mergers, we use the method of Nilssen and Sørgard (1998). We show that if the transportation cost per length is large relative to market size, a merger wave occurs. In addition, it might improve social surplus. On the other hand, if the transportation cost per length is relatively small, a merger wave does not occur even though firms would be better off with sequential mergers.
We also compare our model to that of Levy and Reitzes (1992) who consider horizontal mergers with spatial price competition. We show that in a merger of neighbouring firms the merged firm's profit decreases. This result is opposite to that of Levy and Reitzes (1992).
Finally, we consider how a regulator affects sequential mergers. When each merger occurs, the regulator assesses each merger. In this case, there is a possibility that the existence of the regulator deters welfare-improving sequential mergers.