The University of Southampton
University of Southampton Institutional Repository

Competition and Merger in Network Economy

Competition and Merger in Network Economy
Competition and Merger in Network Economy
This thesis is concerned about firm’s merger and competition behavior in modern
economies in which networks are ever-more important and how to optimize merger
policy when network externalities present. As a demand-side economics of scale,
network externalities bring benefit to consumers through merger and acquisition if the
products from different firms are incompatible. Hence, a merger, which is both
socially optimal and privately profitable, can exist without considering the
supply-side economies of scale. Merger policy should be revised to be able to
recognize these “good” mergers and encourage them. Firm’s incentive to merge is
enlarged by network effect because merged entities can benefit from a larger network,
which increases the demand for their product. Moreover, merger and acquisition in
network world give the merged entities an advantage in competition over the firms
who stand outside the merger. One of the explanations for this advantage is merged
entity may inherit indirect network resources, for example complementary products
producers, from all merged firms, since the mobile of these resources are costly and
slow. Acquiring more firms brings more indirect network resources to merged entity,
which makes the products of merged entity more valuable to the consumers. Thus the
merged entity can charge a higher price or squeeze more market share. Merged entity
can obtain locked-in consumers from all merged firms is another explanation of the
advantage. For some information products, such as TV subscription, internet access
and mobile phone service, consumers need to sign a contract with the service provider
and are locked by these contracts for a fixed period. Merged entity may inherit these
locked-in consumers and show a larger initial network to the consumers who are not
locked at the beginning of the competition. Social planner should be cautious to the
merger in network world because network externalities magnify the power of the
merger, which may be utilized by the firms to get dominant position.
Li, Ke
885f164b-4967-46d1-ae1f-754935708ee9
Li, Ke
885f164b-4967-46d1-ae1f-754935708ee9
Mason, Robin
c989f0e0-de54-495d-aeaf-75b42d62cb61

Li, Ke (2010) Competition and Merger in Network Economy. University of Southampton, School of Social Sciences, Doctoral Thesis, 152pp.

Record type: Thesis (Doctoral)

Abstract

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

Text
PhD-Ke_Li-2010.pdf - Other
Download (1MB)

More information

Published date: April 2010
Organisations: University of Southampton

Identifiers

Local EPrints ID: 152455
URI: http://eprints.soton.ac.uk/id/eprint/152455
PURE UUID: e89d7593-8356-4968-b222-1046ca6cf355

Catalogue record

Date deposited: 17 Jun 2010 10:41
Last modified: 14 Mar 2024 01:23

Export record

Contributors

Author: Ke Li
Thesis advisor: Robin Mason

Download statistics

Downloads from ePrints over the past year. Other digital versions may also be available to download e.g. from the publisher's website.

View more statistics

Atom RSS 1.0 RSS 2.0

Contact ePrints Soton: eprints@soton.ac.uk

ePrints Soton supports OAI 2.0 with a base URL of http://eprints.soton.ac.uk/cgi/oai2

This repository has been built using EPrints software, developed at the University of Southampton, but available to everyone to use.

We use cookies to ensure that we give you the best experience on our website. If you continue without changing your settings, we will assume that you are happy to receive cookies on the University of Southampton website.

×