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Strategic buyers, horizontal mergers and synergies: An experimental investigation

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  • Davis, Douglas D.
  • Wilson, Bart J.

Abstract

This paper reports an experiment designed to evaluate interrelationships between strategic buyers, market power and merger-induced synergies. The experiment consists of 40 posted-offer quadropolies. Treatments include the use of simulated or human buyers, seller consolidations and merger-induced fixed cost and unit cost synergies. In the simulated-buyer markets we observe behavior generally consistent with comparative static predictions: prices rise post-merger, and unit (but not fixed) cost synergies may exert some price-moderating effect. The addition of powerful buyers changes results markedly. Although prices are lower in the human buyer markets, outcomes are more variable and predicted comparative static effects are no longer observed.

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Bibliographic Info

Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 26 (2008)
Issue (Month): 3 (May)
Pages: 643-661

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Handle: RePEc:eee:indorg:v:26:y:2008:i:3:p:643-661

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Web page: http://www.elsevier.com/locate/inca/505551

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Citations

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Cited by:
  1. Douglas D. Davis & Korenok Oleg & Robert Reilly, 2007. "Re-matching, Information and Sequencing Effects in Posted Offer Markets," Working Papers 0701, VCU School of Business, Department of Economics, revised Oct 2007.
  2. Douglas D. Davis, 2006. "Pure Numbers Effects, Market Power, and Tacit Collusion in Posted Offer Markets," Working Papers 0603, VCU School of Business, Department of Economics, revised Jan 2009.
  3. Jim Engle-Warnick & Bradley Ruffle, 2006. "Buyer Concentration As A Source Of Countervailing Power: Evidence From Experimental Posted-Offer Markets," Departmental Working Papers 2006-12, McGill University, Department of Economics.
  4. 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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