Competition in non-linear pricing, market concentration and mergers

We analyze a model of competition in non-linear pricing under complete information. Among the equilibria of the game, we focus on the truthful equilibrium and the equilibrium that is Pareto dominant for the firms. These coincide when there are only two firms, but differ with three or more firms. In truthful equilibria, more highly concentrated markets are always less competitive. In Pareto-dominant equilibria, by contrast, higher market concentration may intensify competition. As a result, buyers may benefit from a merger even in the absence of efficiency gains.