Mergers of complements, endogenous product differentiation and welfare.

The static analysis shows that a merger among complementary input suppliers or complementary patent holders benefits the consumers and the society by reducing the input prices. We show that the effects of a merger of complements are not so straightforward in a dynamic set up with endogenous product differentiation in the final goods market. The merger of complements reduces the total input prices and increases product differentiation. However, whether it increases or decreases consumer surplus and welfare depends on the market expansion following product differentiation, the number of merged input suppliers and the intensity of competition. Hence, in a dynamic setup with endogenous product differentiation, the antitrust authorities may need to be more careful about mergers of complements. Our analysis has also relevance for vertical mergers. • We show mergers of complements may make the consumers and the society worse off. • Endogenous product differentiation in the final goods market constitutes our results. • Our results hold under Bertrand and Cournot competition in the final goods market. • Market expansion, competition, and number of merged input suppliers are important. • Important for vertical merger and different from the results under static analysis. [ABSTRACT FROM AUTHOR]