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LARGE IS BEAUTIFUL: HORIZONTAL MERGERS FOR BETTER EXPLOITATION OF PRODUCTION SHOCKS -super-*

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  • WEN ZHOU
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    Abstract

    The 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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    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1467-6451.2008.00333.x
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    Bibliographic Info

    Article provided by Wiley Blackwell in its journal The Journal of Industrial Economics.

    Volume (Year): 56 (2008)
    Issue (Month): 1 (03)
    Pages: 68-93

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    Handle: RePEc:bla:jindec:v:56:y:2008:i:1:p:68-93

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    Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-1821

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    Cited by:
    1. 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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