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Mergers, Agency Costs, and Social Welfare

Author

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  • Jean-Etienne de Bettignies
  • Thomas W. Ross

Abstract

We examine the impact of a merger to monopoly in a Cournot duopoly framework where managers make cost-reducing investment or effort decisions prior to choosing output. A well-established result is that, absent agency costs, the merger leads to greater investment and lower production costs. We show that, when agency costs are present, this result may be reversed, with mergers leading instead to lower investment/effort, higher production costs, and lower social welfare. (JEL L40, L13, D21, D82)

Suggested Citation

  • Jean-Etienne de Bettignies & Thomas W. Ross, 2014. "Mergers, Agency Costs, and Social Welfare," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 30(2), pages 401-436.
    • Handle: RePEc:oup:jleorg:v:30:y:2014:i:2:p:401-436.
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    File URL: http://hdl.handle.net/10.1093/jleo/ews047
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    Cited by:

    1. Jean-Etienne de Bettignies & Bulat Gainullin & Hua Fang Liu & David T. Robinson, 2018. "The Effects of Downstream Competition on Upstream Innovation and Licensing," NBER Working Papers 25166, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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