Chen, Zhijun and Rey, Patrick (2026) A Theory of Conglomerate Mergers. TSE Working Paper, n. 23-1447, Toulouse

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Abstract

This paper develops a novel theory of harm for conglomerate mergers, grounded on a key feature of ecosystems ñdemand-side synergies from product integration or one-stop shopping. Generating heterogeneous synergies can soften competition and generate higher stand-alone prices, thereby harming consumers with limited synergies and possibly reducing total consumer surplus and social welfare. In contrast to traditional foreclosure theories, precommitment to tying may raise rivals' prices and profits. Furthermore, when markets are concentrated and products are highly differentiated, tying and pure bundling can emerge as de facto best-responses, even in the absence of precommitment.