IDEAS home Printed from https://ideas.repec.org/a/eee/finlet/v38y2021ics1544612319313224.html
   My bibliography  Save this article

Can a small fish become a big fish? Modeling leader-generating mergers in a Stackelberg market

Author

Listed:
  • Qiu, Hong
  • Zhu, Nan
  • Peng, Qiyuan

Abstract

In this note we model two merger cases where the strategic position of a follower firm changes after a merger: 1) one follower and one leader merge into one new leader; and 2) two followers merge into one new leader. Our model indicates that these two leader-generating bilateral mergers are always profitable in the post-merger market. A free-riding issue exists in the first case, but not in the second case. The impacts on consumer surplus also vary with these two cases of mergers.

Suggested Citation

  • 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).
    • Handle: RePEc:eee:finlet:v:38:y:2021:i:c:s1544612319313224
    DOI: 10.1016/j.frl.2020.101684
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1544612319313224
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.frl.2020.101684?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Hanif D. Sherali, 1984. "A Multiple Leader Stackelberg Model and Analysis," Operations Research, INFORMS, vol. 32(2), pages 390-404, April.
    2. Mailath George J., 1993. "Endogenous Sequencing of Firm Decisions," Journal of Economic Theory, Elsevier, vol. 59(1), pages 169-182, February.
    3. Steffen Huck & Kai A. Konrad & Wieland Müller, 2001. "Profitable Horizontal Mergers without Cost Advantages: The Role of Internal Organization, Information, and Market Structure," CESifo Working Paper Series 435, CESifo.
    4. van Damme, Eric & Hurkens, Sjaak, 1999. "Endogenous Stackelberg Leadership," Games and Economic Behavior, Elsevier, vol. 28(1), pages 105-129, July.
    5. Levin, Dan, 1990. "Horizontal Mergers: The 50-Percent Benchmark," American Economic Review, American Economic Association, vol. 80(5), pages 1238-1245, December.
    6. Dominick Salvatore, 2010. "China's Financial Markets in the Global Context," Chinese Economy, Taylor & Francis Journals, vol. 43(6), pages 8-21, November.
    7. 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.
    8. Brito Duarte & Catalão-Lopes Margarida, 2011. "Small Fish Become Big Fish: Mergers in Stackelberg Markets Revisited," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-20, May.
    9. Leung, Guy C.K., 2010. "China's oil use, 1990-2008," Energy Policy, Elsevier, vol. 38(2), pages 932-944, February.
    10. Huck, Steffen & Konrad, Kai A. & Muller, Wieland, 2001. "Big fish eat small fish: on merger in Stackelberg markets," Economics Letters, Elsevier, vol. 73(2), pages 213-217, November.
    11. 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.
    12. 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.
    13. Daughety, Andrew F, 1990. "Beneficial Concentration," American Economic Review, American Economic Association, vol. 80(5), pages 1231-1237, December.
    14. John S. Heywood & Matthew McGinty, 2007. "Mergers among leaders and mergers among followers," Economics Bulletin, AccessEcon, vol. 12(12), pages 1-7.
    15. van Damme, Eric & Hurkens, Sjaak, 1999. "Endogenous Stackelberg Leadership," Games and Economic Behavior, Elsevier, vol. 28(1), pages 105-129, July.
    16. Duarte Brito & Margarida Catalão‐Lopes, 2019. "Are Larger Merger Synergies Bad News for Consumers? Endogenous Post‐Merger Internal Organization," Scandinavian Journal of Economics, Wiley Blackwell, vol. 121(4), pages 1728-1756, October.
    17. Jeffrey Frankel, 2010. "Comment on "China's Current Account and Exchange Rate"," NBER Chapters, in: China's Growing Role in World Trade, pages 271-277, National Bureau of Economic Research, Inc.
    18. repec:ebl:ecbull:v:12:y:2007:i:12:p:1-7 is not listed on IDEAS
    19. Nick Feltovich, 2001. "Mergers, welfare, and concentration: Results from a model of stackelberg-cournot oligopoly," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 29(4), pages 378-392, December.
    20. Robin Kleer, 2012. "The effect of mergers on the incentive to invest in cost-reducing innovations," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 21(3), pages 287-322, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Brito Duarte & Catalão-Lopes Margarida, 2011. "Small Fish Become Big Fish: Mergers in Stackelberg Markets Revisited," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-20, May.
    2. 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.
    3. Walter Ferrarese, 2020. "When Multiple Merged Entities Lead in Stackelberg Oligopolies," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 56(1), pages 131-142, February.
    4. 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.
    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. 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.
    7. Gamal Atallah, 2015. "Multi-Firm Mergers with Leaders and Followers," Working Papers E1501E, University of Ottawa, Department of Economics.
    8. repec:ebl:ecbull:v:12:y:2007:i:12:p:1-7 is not listed on IDEAS
    9. Ziss, Steffen, 2007. "Hierarchies, intra-firm competition and mergers," International Journal of Industrial Organization, Elsevier, vol. 25(2), pages 237-260, April.
    10. 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.
    11. 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.
    12. Marc Escrihuela-Villar, 2019. "On Mergers in a Stackelberg Market with Asymmetric Convex Costs," Journal of Industry, Competition and Trade, Springer, vol. 19(1), pages 21-32, March.
    13. Duarte Brito & Margarida Catalão‐Lopes, 2019. "Are Larger Merger Synergies Bad News for Consumers? Endogenous Post‐Merger Internal Organization," Scandinavian Journal of Economics, Wiley Blackwell, vol. 121(4), pages 1728-1756, October.
    14. Juan Alejandro Gelves, 2010. "Horizontal Merger With An Inefficient Leader," Manchester School, University of Manchester, vol. 78(5), pages 379-394, September.
    15. Artz, Benjamin & Heywood, John S. & McGinty, Matthew, 2009. "The merger paradox in a mixed oligopoly," Research in Economics, Elsevier, vol. 63(1), pages 1-10, March.
    16. Ludovic Julien & Olivier Musy & Aurélien Saïdi, 2011. "Do Followers Really Matter in Stackelberg Competition?," Lecturas de Economía, Universidad de Antioquia, Departamento de Economía, issue 75, pages 11-27.
    17. Lommerud, Kjell Erik & Sorgard, Lars, 1997. "Merger and product range rivalry," International Journal of Industrial Organization, Elsevier, vol. 16(1), pages 21-42, November.
    18. Liu, Chih-Chen & Wang, Leonard F.S., 2015. "Leading merger in a Stackelberg oligopoly: Profitability and consumer welfare," Economics Letters, Elsevier, vol. 129(C), pages 1-3.
    19. Beladi, Hamid & Mukherjee, Arijit, 2012. "Footloose foreign firm and profitable domestic merger," Journal of Economic Behavior & Organization, Elsevier, vol. 83(2), pages 186-194.
    20. Gelves, J. Alejandro & Heywood, John S., 2013. "Privatizing by merger: The case of an inefficient public leader," International Review of Economics & Finance, Elsevier, vol. 27(C), pages 69-79.
    21. Esfahani, Hamideh, 2019. "Profitability of horizontal mergers in the presence of price stickiness," European Journal of Operational Research, Elsevier, vol. 279(3), pages 941-950.

    More about this item

    Keywords

    Stackelberg market; Mergers; Linear costs;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finlet:v:38:y:2021:i:c:s1544612319313224. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/frl .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.