Description:
This paper explores the concept of cooperative merger between two of three entrants that arrive sequentially in a spatial market and practise discriminatory pricing. In this framework, in contrast to much of the theoretical literature, the so-called 'merger paradox' can be comprehensively overturned.We compare our results with those arising when one firm strategically locates two plants. Although this second problem is superficially similar to the first, the underlying behavior and implications differ in crucial respects. The welfare consequences of all of our results are demonstrated