Intra-firm Coordination and Horizontal Merger

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Intra-firm Coordination and Horizontal Merger

Author Info

Michael Higl () (University of Augsburg, Department of Economics)
Peter Welzel () (University of Augsburg, Department of Economics)

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Abstract

We look at an industry of Cournot oligopolists each of which consists of production facilities which enjoy some degree of freedom in deciding their output quantities and that way influence the total output of a firm. This structure can be motivated e.g. the existence of profit centers or by the specifics of a cooperative firm. The extent of coordination inside the firms is captured in a simple way, and market equilibrium is derived for potentially asymmetric firms using the concept of a replacement function. We use this model to address the question of profitability of horizontal mergers and of the welfare consequences of such mergers. Contrary to the standard literature, we find a wide range of potentially profitable mergers without having to refer to cost synergies. This result is driven by the effect of size in terms of the number of production facilities and by the strategic consequences of intra-firm decentralization. A number of seemingly conflicting results from the literature can be considered special cases of our model.

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Paper provided by Universitaet Augsburg, Institute for Economics in its series Discussion Paper Series with number 269.

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Date of creation: Feb 2005
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Handle: RePEc:aug:augsbe:0269

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Find related papers by JEL classification:
L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

This paper has been announced in the following NEP Reports:

NEP-ACC-2005-02-27 (Accounting & Auditing)
NEP-ALL-2005-02-27 (All new papers)
NEP-COM-2005-02-27 (Industrial Competition)
NEP-IND-2005-02-27 (Industrial Organization)

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