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Merging with a buyer group member

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  • Can Erutku

    (Department of Economics, Glendon College, Toronto, Ont., Canada)

  • Patrick de Lamirande

    (Department of Financial and Information Management, Cape Breton University, Sydney, N. S., Canada)

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    Abstract

    We examine a merger between a national retailer and a local retailer who is a member of a buyer group. While the traditional literature on mergers assumes an oligopolistic industry (where the merger takes place) supplied by a perfectly competitive one, we assume here that retailers obtain their input from a supplier that can offer quantity discounts. In this setting, a merger can be profitable for insiders (solving the merger paradox) and can also be more profitable for insiders than for outsiders (solving the free-riding problem). This result holds even if the merged firm ends-up with a small share of the market. However, welfare decreases post-merger. Copyright © 2009 John Wiley & Sons, Ltd.

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    File URL: http://hdl.handle.net/10.1002/mde.1465
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    Bibliographic Info

    Article provided by John Wiley & Sons, Ltd. in its journal Managerial and Decision Economics.

    Volume (Year): 30 (2009)
    Issue (Month): 7 ()
    Pages: 481-490

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    Handle: RePEc:wly:mgtdec:v:30:y:2009:i:7:p:481-490

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    Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/7976

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    1. Anthony Creane & Carl Davidson, 2004. "Multidivisional firms, internal competition, and the merger paradox," Canadian Journal of Economics, Canadian Economics Association, vol. 37(4), pages 951-977, November.
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    14. Lommerud, Kjell Erik & Straume, Odd Rune & Sorgard, Lars, 2005. "Downstream merger with upstream market power," European Economic Review, Elsevier, vol. 49(3), pages 717-743, April.
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