Simulating Merger E ects Among Capacity-Constrained Firms

In this paper, we simulate the e ects of mergers in an industry of rms facing capacity constraints. In equilibrium, each rm prices where marginal revenue equals marginal cost or, if the capacity constraint is binding, where expected demand equals capacity. We develop an algorithm to compute Nash equilibrium. Capacity constraints on the merged rms attenuate merger e ects, and capacity constraints on the non-merging rms amplify merger e ects. To illustrate the magnitude of these e ects, we simulate the e ects of hypothetical mergers in a retail industry where products are di erentiated by location. The attenuating e ect of constraints on merging rms is much bigger than the amplifying e ect of constraints on non-merging rms.