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Mergers, Investment Decisions and Internal Organisation

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  • Albert Banal-Estañol
  • Ines Macho-Stadler
  • Jo Seldeslachts

Abstract

We analyse the effects of investment decisions and firms’ internal organisation on the efficiency and stability of horizontal mergers. In our framework economies of scale are endogenous and there might be internal conflict within merged firms. We show that often stable mergers do not lead to more e.ciency and may even lead to efficiency losses. These mergers lead to lower total welfare, suggesting that a regulator should be careful in assuming that possible efficiency gains of a merger will be effectively realised. Moreover, the paper offers a possible explanation for merger failures.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2003/wp-cesifo-2003-05/cesifo_wp944.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 944.

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Date of creation: 2003
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Handle: RePEc:ces:ceswps:_944

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Keywords: horizontal mergers; investment; efficiency gains; internal conflict;

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  1. AMIR, Rabah & DIAMANTOUDI, Effrosyni & XUE, Licun, 2003. "Merger performance under uncertain efficiency gains," CORE Discussion Papers 2003038, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. George J. Mailath & Volker Nocke & Andrew Postlewaite, 2004. "Business Strategy, Human Capital, and Managerial Incentives," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(4), pages 617-633, December.
  3. Debraj Ray & Rajiv Vohra, 1998. "A Theory of Endogenous Coalition Structures," Working Papers 98-1, Brown University, Department of Economics, revised Jan 1998.
  4. Röller, Lars-Hendrik & Stennek, Johan & Verboven, Frank, 2000. "Efficiency Gains from Mergers," Working Paper Series 543, Research Institute of Industrial Economics.
  5. Albert Banal-Esta?l, 2002. "Information-Sharing Implications of Horizontal Mergers," UFAE and IAE Working Papers 544.02, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  6. Effrosyni Diamantoudi, 2003. "Equilibrium binding agreements under diverse behavioral assumptions," Economic Theory, Springer, vol. 22(2), pages 431-446, 09.
  7. Belleflamme, Paul, 2000. "Stable Coalition Structures with Open Membership and Asymmetric Firms," Games and Economic Behavior, Elsevier, vol. 30(1), pages 1-21, January.
  8. Farrell, Joseph & Shapiro, Carl, 2000. "Scale Economies and Synergies in Horizontal Merger Analysis," Department of Economics, Working Paper Series qt96z174x1, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  9. Massimo MOTTA & Helder VASCONCELOS, 2003. "Efficiency Gains and Myopic Antitrust Authority in a Dynamic Merger Game," Economics Working Papers ECO2003/23, European University Institute.
  10. Mari Paz Espinosa & Inez Macho-Stadler, 2000. "Endogenous Formation of Partnership with Moral Hazard," Econometric Society World Congress 2000 Contributed Papers 0565, Econometric Society.
  11. Sven-Olof Fridolfsson & Johan Stennek, 2005. "Why Mergers Reduce Profits And Raise Share Prices-A Theory Of Preemptive Mergers," Journal of the European Economic Association, MIT Press, vol. 3(5), pages 1083-1104, 09.
  12. Persson, Lars & Horn, Henrik, 1998. "Endogenous Mergers in Concentrated Markets," Working Paper Series 513, Research Institute of Industrial Economics.
  13. Rajan, Raghuram G & Zingales, Luigi, 1998. "Power in a Theory of the Firm," CEPR Discussion Papers 1777, C.E.P.R. Discussion Papers.
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  16. Fridolfsson S.O. & Stennek J., 1999. "Why mergers reduce profits, and raise share prices: A theory of preemptive mergers," Working Papers 1999018, University of Antwerp, Faculty of Applied Economics.
  17. Perry, Martin K & Porter, Robert H, 1985. "Oligopoly and the Incentive for Horizontal Merger," American Economic Review, American Economic Association, vol. 75(1), pages 219-27, March.
  18. Paolo Fulghieri & Laurie Simon Hodrick, 2006. "Synergies and Internal Agency Conflicts: The Double-Edged Sword of Mergers," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 15(3), pages 549-576, 09.
  19. Morton I. Kamien & Israel Zang, 1988. "The Limits of Monopolization Through Acquisition," Discussion Papers 802, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  20. Yi, Sang-Seung, 1997. "Stable Coalition Structures with Externalities," Games and Economic Behavior, Elsevier, vol. 20(2), pages 201-237, August.
  21. Kandel, Eugene & Lazear, Edward P, 1992. "Peer Pressure and Partnerships," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 801-17, August.
  22. Holmstrom, Bengt, 1999. "The Firm as a Subeconomy," Journal of Law, Economics and Organization, Oxford University Press, vol. 15(1), pages 74-102, April.
  23. Francis Bloch, 1995. "Endogenous Structures of Association in Oligopolies," RAND Journal of Economics, The RAND Corporation, vol. 26(3), pages 537-556, Autumn.
  24. Salant, Stephen W & Switzer, Sheldon & Reynolds, Robert J, 1983. "Losses from Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 98(2), pages 185-99, May.
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Cited by:
  1. Miguel González-Maestre & Diego Peñarrubia, 2005. "Innovation, merger policy and technology transfer," Investigaciones Economicas, Fundación SEPI, vol. 29(1), pages 181-201, January.

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