And Associate Director for Economic and Business Studies

and omissions are my own. NETWORK EXTERNALITIES, MERGERS, AND INDUSTRY CONCENTRATION I examine how mergers affect performance in network industries. Network providers choose quality for communication within the provider’s own network, quality for communication between providers ’ networks, and output. Cross-border mergers provide firms an incentive to increase output because merged firms internalize positive network externalities. Several results modify conclusions in the current literature. Mergers between larger firms improve consumer surplus more than do mergers between smaller firms. Mergers may improve welfare and lower industry costs even if they increase marginal costs. Horizontal mergers may improve welfare even if marginal costs are unaffected. The Herfindahl-Hirschman index increases even when consumer surplus increases. The welfare effects of mergers and market concentration have been analyzed extensively. (See, for example, Salant et al. (1983), Farrell and Shapiro (1990a, 1990b), and Gaudet an