Experiments on horizontal mergers: Does size matter?

Current Department of Justice merger guidelines assume that merging the capacities of two firms will translate into an equivalent increase in market shares. Size matters. Economic theory asserts size is determined by marginal revenue and marginal cost not capacity. Size does not matter. In this paper we run horizontal merger experiments and find that the firms tend to share monopoly profits regardless of the size of the firms. ► Horizontal mergers lead to symmetric sharing of profits. ► Incentives to cheat and punish do not affect the willingness to symmetrically share profits. ► Cheap talk does not alter symmetric profit sharing in aftermath of horizontal mergers.