Product Assortment Effects of Mergers

Abstract

The effect of mergers on product assortments is theoretically ambiguous. Reduced competition may decrease firms' incentives to offer variety, while efficiency gains may lower the cost of introducing new offerings. This study empirically analyzes merger effects on product assortments in the U.S. car rental industry using three cross-sections of airport-brand-level data from 2009, 2013, and 2016 that span the Hertz/Dollar-Thrifty and Avis-Budget/Payless mergers. The analysis relates changes in the number of distinct vehicle types that each brand offers at an airport to merger-induced changes in the number of independent owners. Results indicate that mergers reduce assortment growth-particularly for specialized vehicle types such as SUVs and vans, and for higher-tier options. These negative effects concentrate in smaller airports; big-city airports show no comparable declines and may experience assortment increases. The findings emphasize the importance of considering market-specific factors and product variety effects alongside price effects in merger evaluation.