function of the equilibrium change (XI) of the colluder’s output. A small reduction in XI has a net positive effect on outsiders and customers if the total outsider market share and response function are larger than the colluder’s market share. If there is a merger between colluding firms such that it their initial market share is not greater than the outsiders, the price and marginal cost functions are non-negative in the 2nd and 3rd order for all the outsider firms, then if the merger is profitable and would raise the price, then it would also raise welfare. The sign of the net effect on welfare from a small outwards shift in an individual firm’s reaction curves function is given by the difference between that firm’s market share and the sum total of each of the other firms reaction functions multiplied by their individual market shares. In a market with large rival firms, a sufficiently small entrant will have a net negative effect on welfare, as the market share taken from other firms is at a higher marginal cost than the increase in customer welfare. Therefore, overall welfare decreases. Reducing imports by a quota will raise domestic welfare if and only if the share of imports are less than the reaction-weighted sum of domestic producers shares. This means for a sufficiently small import sector, excluding all imports will raise welfare. This is due to the lower marginal cost of domestic producers generating a larger welfare gain than the customer welfare loss due to domestic price increases. References Oliver Budzinski and Isabel Ruhmer, Merger Simulation in Competition Policy: A Survey, Journal of Competition Law & Economics (2010), 6(2): 277-319. Mergers and acquisitions