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Mergers, welfare, and concentration: Results from a model of stackelberg-cournot oligopoly

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  • Nick Feltovich

Abstract

This paper explores the relationship between mergers, welfare, and concentration, using a two-stage oligopoly model that generalizes the Cournot and Stackelberg models. This model has been used to show that some profitable mergers raise welfare and that some welfare-lowering mergers are unprofitable. Based on this, one might conclude that policy designed to restrict mergers is unnecessary or even counterproductive. This present paper examines in greater detail the implications of this model and finds that a merger's effects depend not only on the reduction in the number of firms, but also on premerger and postmerger firm behavior. In fact, most mergers lower welfare, and many of these are profitable. Usually, but not always, changes in concentration and welfare are negatively related. Copyright International Atlantic Economic Society 2001

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  • 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.
    • Handle: RePEc:kap:atlecj:v:29:y:2001:i:4:p:378-392
    DOI: 10.1007/BF02299328
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    1. Hanif D. Sherali, 1984. "A Multiple Leader Stackelberg Model and Analysis," Operations Research, INFORMS, vol. 32(2), pages 390-404, April.
    2. Farrell, Joseph & Shapiro, Carl, 1990. "Horizontal Mergers: An Equilibrium Analysis," American Economic Review, American Economic Association, vol. 80(1), pages 107-126, March.
    3. Robson, Arthur J, 1990. "Stackelberg and Marshall," American Economic Review, American Economic Association, vol. 80(1), pages 69-82, March.
    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. Daughety, Andrew F, 1990. "Beneficial Concentration," American Economic Review, American Economic Association, vol. 80(5), pages 1231-1237, December.
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    Cited by:

    1. Akio Matsumoto & Ugo Merlone & Ferenc Szidarovszky, 2010. "Cartelising Groups In Dynamic Hyperbolic Oligopoly With Antitrust Threshold," Australian Economic Papers, Wiley Blackwell, vol. 49(4), pages 289-300, December.
    2. 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).
    3. Nicolas Le Pape & Kai Zhao, 2010. "Cost-saving or Cost-enhancing Mergers: the Impact of the Distribution of Roles in Oligopoly," Working Papers halshs-00812080, HAL.
    4. Z. Ayca Altintig & K. Peren Arin & Eberhard Feess & Christoph Schumacher, 2009. "You Are One Of Us Now! How Do Share Prices Of Rivals React To Privatization?," Journal of Industrial Economics, Wiley Blackwell, vol. 57(2), pages 265-293, June.
    5. Rigoberto A. López & Elena López & Carmen Liron-Espana, 2009. "When is concentration beneficial? Evidence from U.S. manufacturing," Alcamentos 0901, Universidad de Alcalá, Departamento de Economía..
    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. Walter Ferrarese, 2017. "Endogenous Mergers and Leadership Acquisition in Cournot Oligopolies," CEIS Research Paper 398, Tor Vergata University, CEIS, revised 06 Dec 2017.
    8. Gamal Atallah, 2015. "Multi-Firm Mergers with Leaders and Followers," Working Papers E1501E, University of Ottawa, Department of Economics.
    9. 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.
    10. Rigoberto Lopez & Elena Lopez & Carmen Lirón-España, 2014. "Who Benefits from Industrial Concentration? Evidence from U.S. Manufacturing," Journal of Industry, Competition and Trade, Springer, vol. 14(3), pages 303-317, September.
    11. 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.
    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. 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.
    14. 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.
    15. 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.
    16. 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.

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