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Merger wave in a small world: Two views

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  • Lee, Li Way
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    Abstract

    I attempt a more balanced assessment of mergers in terms of systemic risk versus other effects. First, using the simplest network model, I illustrate how mergers can increase systemic risk by reducing the degree of separation among firms. Then, recasting the firms in a simple economic model that features consumers explicitly, I show how a merger wave – a contagious urge to merge – can occur and what benefit it may bring to consumers. Together, these two models suggest that there is a tradeoff to consider: While a merger wave may result in higher systemic risk, it may also bring about higher consumer welfare.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics).

    Volume (Year): 43 (2013)
    Issue (Month): C ()
    Pages: 68-71

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    Handle: RePEc:eee:soceco:v:43:y:2013:i:c:p:68-71

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    Web page: http://www.elsevier.com/locate/inca/620175

    Related research

    Keywords: Merger wave; Small world; Financial network; Merger contagion; Systemic risk; Product differentiation;

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    1. Scherer, F. M., 2010. "A Perplexed Economist Confronts 'Too Big to Fail'," Working Paper Series rwp10-007, Harvard University, John F. Kennedy School of Government.
    2. F. M. Scherer, 2010. "A Perplexed Economist Confronts 'too Big to Fail'," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 7(2), pages 267-284, June.
    3. Hay, D A, 1976. "Sequential Entry and Entry-Deterring Strategies in Spatial Competition," Oxford Economic Papers, Oxford University Press, vol. 28(2), pages 240-57, July.
    4. Gai, Prasanna & Haldane, Andrew & Kapadia, Sujit, 2011. "Complexity, concentration and contagion," Journal of Monetary Economics, Elsevier, vol. 58(5), pages 453-470.
    5. Scherer, Frederic Michael, 2010. "A Perplexed Economist Confronts 'Too Big to Fail'," Scholarly Articles 4454151, Harvard Kennedy School of Government.
    6. Stefania Vitali & James B. Glattfelder & Stefano Battiston, 2011. "The network of global corporate control," Papers 1107.5728, arXiv.org, revised Sep 2011.
    7. B.Curtis Eaton & Richard G. Lipsey, 1972. "The Principle of Minimum Differentiation Reconsidered: Some New Developments in the Theory of Spatial Competition," Working Papers 87, Queen's University, Department of Economics.
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