The effect of horizontal mergers, when firms compete in prices and investments

Motivated by a number of high-profile antitrust cases, we study mergers when firms offer differentiated products and compete in prices and investments. Since the net effect of the merger is a priori ambiguous, we use aggregative game theory to sign it: we find thatabsent efficiency gains, the merger always reduces total investments and consumer surplus. We also prove that there exist classes of models for which the results obtained with cost-reducing investments are equivalent to those with quality-enhancing investments.