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Mergers among leaders and mergers among followers

Author

Listed:
  • John S. Heywood

    (University of Wisconsin - Milwaukee)

  • Matthew McGinty

    (University of Wisconsin-Milwaukee)

Abstract

We are the first to confirm that sufficient cost convexity in a Stackelberg model generates profitable mergers between two leaders and between two followers. Moreover, the degree of convexity required for leaders to merge is generally far smaller than that required for followers. Most importantly, the structure of the stage game means that the convexity required for either two followers or two leaders to merge is less than that required for two Cournot competitors.

Suggested Citation

  • John S. Heywood & Matthew McGinty, 2007. "Mergers among leaders and mergers among followers," Economics Bulletin, AccessEcon, vol. 12(12), pages 1-7.
    • Handle: RePEc:ebl:ecbull:eb-07l10017
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    File URL: http://www.accessecon.com/pubs/EB/2007/Volume12/EB-07L10017A.pdf
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    References listed on IDEAS

    as
    1. Farrell, Joseph & Shapiro, Carl, 1990. "Horizontal Mergers: An Equilibrium Analysis," American Economic Review, American Economic Association, vol. 80(1), pages 107-126, March.
    2. Steffen Huck & Kai A. Konrad & Wieland Müller, 2004. "Profitable Horizontal Mergers without Cost Advantages: The Role of Internal Organization, Information and Market Structure," Economica, London School of Economics and Political Science, vol. 71(284), pages 575-587, November.
    3. Rothschild, R. & Heywood, John S. & Monaco, Kristen, 2000. "Spatial price discrimination and the merger paradox," Regional Science and Urban Economics, Elsevier, vol. 30(5), pages 491-506, September.
    4. Stephen W. Salant & Sheldon Switzer & Robert J. Reynolds, 1983. "Losses From Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 98(2), pages 185-199.
    5. Perry, Martin K & Porter, Robert H, 1985. "Oligopoly and the Incentive for Horizontal Merger," American Economic Review, American Economic Association, vol. 75(1), pages 219-227, March.
    6. John S. Heywood & Matthew McGinty, 2008. "Leading and Merging: Convex Costs, Stackelberg, and the Merger Paradox," Southern Economic Journal, John Wiley & Sons, vol. 74(3), pages 879-893, January.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Qiu, Hong & Zhu, Nan & Peng, Qiyuan, 2021. "Can a small fish become a big fish? Modeling leader-generating mergers in a Stackelberg market," Finance Research Letters, Elsevier, vol. 38(C).
    2. Nicolas Le Pape & Kai Zhao, 2010. "Cost-saving or Cost-enhancing Mergers: the Impact of the Distribution of Roles in Oligopoly," TEPP Working Paper 2010-18, TEPP.
    3. Julien, Ludovic & Musy, Oliver & Saidi, Aurélien, 2011. "Do Followers Really Matter in Stackelberg Competition?," Revista Lecturas de Economía, Universidad de Antioquia, CIE, November.
    4. Gamal Atallah, 2015. "Multi-Firm Mergers with Leaders and Followers," Working Papers E1501E, University of Ottawa, Department of Economics.
    5. Mariana Cunha & Hélder Vasconcelos, 2018. "Sequential Mergers and Antitrust Authority’s Decisions in Stackelberg Markets," Journal of Industry, Competition and Trade, Springer, vol. 18(3), pages 373-394, September.
    6. Le Pape, Nicolas & Zhao, Kai, 2014. "Horizontal mergers and uncertainty," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 8, pages 1-31.
    7. Marc Escrihuela-Villar, 2013. "On merger in a collusive Stackelberg market," Economics Bulletin, AccessEcon, vol. 33(3), pages 2394-2401.
    8. Kohei Kamaga & Yasuhiko Nakamura, 2007. "The Core and Productivity-Improving Mergers in Mixed Oligopoly," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 6(3), pages 181-198, December.
    9. Walter Ferrarese, 2021. "Merger Waves Through Market Leadership," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 7(3), pages 371-385, November.
    10. Mariana Cunha & Hélder Vasconcelos, 2015. "Mergers in Stackelberg Markets with Efficiency Gains," Journal of Industry, Competition and Trade, Springer, vol. 15(2), pages 105-134, June.

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    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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