A stricter merger control policy increases the expectation of future price competition. In response, firms increase product differentiation to sustain higher prices. Failing to account for such policy-variant prices may lead to overestimation of the increase in consumer surplus due to the...

I consider a model of duopoly where firms make sequential product design changes prior to price competition. I show that a socially desirable outcome is possible in this model. In equilibrium, the leader's product is less specific, implying a customer attraction strategy, and the follower's...