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Horizontal Mergers between Asymmetric Low-Carbon Manufacturers

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Abstract

Mergers have become an important means for low-carbon manufacturers to improve their efficiency and competitiveness. This paper studies the impact of horizontal mergers between asymmetric low-carbon manufacturers on product diversity, profits, consumer surplus, and the environment. In the premerger model, we consider two asymmetric manufacturers in terms of market potential that produce two products and compete on prices and carbon emissions. In the postmerger model, the two asymmetric manufacturers merge into one firm. The merged manufacturer can either continue to produce two products and collude on both products’ prices and carbon emissions or enjoy both production and green technology investment cost savings to produce only one product. Our result suggests that when the merged manufacturer produces two products, the merger does not necessarily lead to higher prices, which stands in sharp contrast to the conventional wisdom. Furthermore, the merger always benefits the manufacturer but harms consumers. When the merged manufacturer chooses to produce only one product, however, we confirm that the merger can lead to a win-win-win outcome, i.e., the manufacturer, customers, and environment all become better off if either the production or investment savings are salient. The conventional wisdom shows that salient costing savings lead to price reduction. Nevertheless, we show that the merged manufacturer can charge consumers higher prices to provide lower-emission products. In addition, we show that improving investment (production) cost savings is more effective for the merged manufacturer if these two cost savings are salient (not salient). Finally, the merged manufacturer should not reduce diversity if these two cost savings are relatively low because the profit and consumer surplus may be simultaneously lower. We also extend our base model to the case where there exist three manufacturers in the premerger model and the merged firm still operates in a competitive market.

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Acknowledgments

Wenhui Fu is the corresponding author. We thank the Editor(s) and two anonymous referees for their constructive and insightful comments, which help us significantly improve the quality of our paper. This paper was supported by the National Natural Science Foundation of China under Grant Nos. 72001048 and 72102080, the Guangdong Basic and Applied Basic Research Foundation under Grant Nos. 2019A1515011767, 2019A1515110848, 2021A1515011969, and 2021A1515011876, and the Planning Projects of Philosophy and Social Science of Guangdong under Grant No. GD19YGL12.

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Authors and Affiliations

  1. School of Management, Guangdong University of Technology, Guangzhou, 510520, China

    Xiaogang Lin, Kangning Jin & Qiang Lin

  2. School of Economics and Management, South China Normal University, Guangzhou, 510006, China

    Wenhui Fu

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  1. Xiaogang Lin
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  2. Kangning Jin
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Correspondence to Wenhui Fu.

Additional information

Xiaogang Lin is an associate professor of School of Management at Guangdong University of Technology, Guangzhou, Guangdong Province. He received his Ph.D. degree in School of Business Administration from South China University of Technology in 2019. His areas of expertise include operations management in sharing economy and pricing in two-sided markets.

Kangning Jin is a postgraduate student in the School of Management at Guangdong University of Technology, Guangzhou, Guangdong Province. Her research interests include operations management in sharing economy and pricing in two-sided markets.

Wenhui Fu is an assistant professor at School of Economics and Management, South China Normal University. Her research interests have been in the areas of Service Innovation and Supply Chain Management. She has published in International Journal of Operations and Production Management, Journal of Service Management, Industrial Management & Data Systems, and some other refereed journals.

Qiang Lin is an associate professor of School of Management at Guangdong University of Technology, Guangzhou, Guangdong Province. He received his PhD. degree in School of Business Administration from South China University of Technology in 2015. His areas of expertise include the optimization and coordination of supply chain.

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Lin, X., Jin, K., Fu, W. et al. Horizontal Mergers between Asymmetric Low-Carbon Manufacturers. J. Syst. Sci. Syst. Eng. 31, 619–647 (2022). https://doi.org/10.1007/s11518-022-5536-6

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