Demand‐Driven Mergers: Advertising, Differentiation, and Welfare

ABSTRACT We consider mergers that induce demand changes. We study the firms' incentives to submit a merger request and the competition authority's decision to approve the request. We show that merger‐induced demand changes help expand settings where the interests of firms and competition authority align, whereas contexts where their interests are misaligned become less likely. We allow for several extensions, showing that more severe cost convexities make it more likely for firms to submit merger requests that are detrimental for consumers, whereas more differentiated products or allowing firms to invest in advertising reduce this type of mergers, thus helping align the preferences of the merged entity and the competition authority.