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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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Cited by:
  1. 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, Università degli Studi di Roma "La Sapienza".
  2. 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.
  3. Heywood, John S. & McGinty, Matthew, 2011. "Cross-border mergers in a mixed oligopoly," Economic Modelling, Elsevier, vol. 28(1-2), pages 382-389, January.
  4. Keisuke Hattori & Ming-Hsin Lin, 2011. "Alliance Partner Choice in Markets with Vertical and Horizontal Externalities," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 11(1), pages 13.
  5. Ludovic Julien, 2011. "A note on Stackelberg competition," Journal of Economics, Springer, vol. 103(2), pages 171-187, June.
  6. John S. Heywood & Matthew McGinty, 2007. "Mergers among leaders and mergers among followers," Economics Bulletin, AccessEcon, vol. 12(12), pages 1-7.

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