LARGE IS BEAUTIFUL: HORIZONTAL MERGERS FOR BETTER EXPLOITATION OF PRODUCTION SHOCKS -super-*
AbstractThe profitability of horizontal mergers is investigated in a situation in which firms face a production shock and therefore are uncertain about their future costs. I show that, due to production rationalization, small-scale mergers can be profitable if the uncertainty is large. The efficiency gain in production also implies benign welfare consequences. Under cost uncertainty, a profitable merger always improves social welfare if no more than half of the industry's firms are allowed to merge. Finally, I show that the incentives to merge depend on the information structure. Firms are less likely to merge when they possess more information. Copyright 2008 The Author.
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal The Journal of Industrial Economics.
Volume (Year): 56 (2008)
Issue (Month): 1 (03)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-1821
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- Konrad, Kai A., 2010. "Merger profitability in industries with brand portfolios and loyal customers," Discussion Papers, Research Professorship & Project "The Future of Fiscal Federalism" SP II 2010-08, Social Science Research Center Berlin (WZB).
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