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Leading and Merging: Convex Costs, Stackelberg, and the Merger Paradox

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Author Info

  • John S. Heywood

    ()
    (Department of Economics, University of Wisconsin-Milwaukee, P.O. Box 413, Milwaukee, WI 53201, USA)

  • Matthew McGinty

    ()
    (Department of Economics, University of Wisconsin-Milwaukee, P.O. Box 413, Milwaukee, WI 53201, USA)

Abstract

This paper examines the consequences of a Stackelberg leader merging with followers when costs are convex. Such mergers are always profitable for the participants, and the followers often do better merging than remaining excluded rivals. This resolution of the merger paradox cannot be generated either by Stackelberg leadership without convex costs or by convex costs without leadership. In addition, with convex costs, a merger with the leader can actually harm excluded rivals (suggesting why they might object to the merger) and increase social welfare.

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Bibliographic Info

Article provided by Southern Economic Association in its journal Southern Economic Journal.

Volume (Year): 74 (2008)
Issue (Month): 3 (January)
Pages: 879-893

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Handle: RePEc:sej:ancoec:v:74:3:y:2008:p:879-893

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Web page: http://www.southerneconomic.org/
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Cited by:
  1. Gelves, J. Alejandro & Heywood, John S., 2013. "Privatizing by merger: The case of an inefficient public leader," International Review of Economics & Finance, Elsevier, Elsevier, vol. 27(C), pages 69-79.
  2. repec:ebl:ecbull:v:12:y:2007:i:12:p:1-7 is not listed on IDEAS
  3. Heywood, John S. & McGinty, Matthew, 2011. "Cross-border mergers in a mixed oligopoly," Economic Modelling, Elsevier, Elsevier, vol. 28(1), pages 382-389.
  4. Ludovic A. Julien & Olivier Musy & Aurélien W. Saïdi, 2011. "Do followers really matter in Stackelberg competition?," EconomiX Working Papers 2011-10, University of Paris West - Nanterre la Défense, EconomiX.
  5. Hattori Keisuke & Lin Ming-Hsin, 2011. "Alliance Partner Choice in Markets with Vertical and Horizontal Externalities," The B.E. Journal of Theoretical Economics, De Gruyter, De Gruyter, vol. 11(1), pages 1-27, June.
  6. Ludovic Julien & Olivier Musy & Aurélien Saïdi, 2012. "On hierarchical competition in oligopoly," Journal of Economics, Springer, Springer, vol. 107(3), pages 217-237, November.
  7. John S. Heywood & Matthew McGinty, 2007. "Mergers among leaders and mergers among followers," Economics Bulletin, AccessEcon, vol. 12(12), pages 1-7.
  8. Ludovic Julien, 2011. "A note on Stackelberg competition," Journal of Economics, Springer, Springer, vol. 103(2), pages 171-187, June.
  9. Marco Marini & Giorgio Rodano, 2012. "Sequential vs Collusive Payoffs in Symmetric Duopoly Games," DIAG Technical Reports 2012-06, Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza".

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