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The closed-loop effect and the profitability of horizontal mergers

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Author Info
Hassan Benchekroun

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Abstract

We study the profitability of horizontal mergers in a dynamic competition context with sticky prices. It is shown that, when firms use open-loop strategies, a merger is profitable only if the share of the market that merges is significant enough. In the case where firms use closed-loop strategies we provide a method to conduct analytically the study of the profitability of horizontal mergers. We first prove the existence of an equilibrium of the game when a subset of firms merges. When firms use feedback strategies, mergers are profitable even when the share of the market that merges is arbitrarily small.

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File URL: http://economics.ca/cgi/xms?jab=v36n3/02.pdf
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Publisher Info
Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 36 (2003)
Issue (Month): 3 (August)
Pages: 546-565
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Handle: RePEc:cje:issued:v:36:y:2003:i:3:p:546-565

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Postal: Canadian Economics Association Prof. Steven Ambler, Secretary-Treasurer c/o Olivier Lebert, CEA/CJE/CPP Office CIREQ-C.R.D.E., Université de Montréal C.P. 6128, succursale Centre-ville Montréal, Québec, H3C 3J7, Canada
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Find related papers by JEL classification:
D4 - Microeconomics - - Market Structure and Pricing
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Hassan Benchekroun & Licun Xue, 2006. "Cartel Stability In A Dynamic Oligopoly With Sticky Prices," Departmental Working Papers 2005-08, McGill University, Department of Economics. [Downloadable!]
  2. Berardino Cesi, 2006. "Profitability of Horizontal Mergers in Trigger Strategy Game," Discussion Papers in Economics 06/4, Department of Economics, University of Leicester. [Downloadable!]
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This page was last updated on 2008-9-30.

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