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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. Morton I. Kamien & Israel Zang, 1988. "The Limits of Monopolization Through Acquisition," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 802, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  2. Farrell, Joseph & Shapiro, Carl, 2000. "Scale Economies and Synergies in Horizontal Merger Analysis," Competition Policy Center, Working Paper Series, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley qt8v1500b8, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
  3. Kandel, E. & Lazear, E.P., 1990. "Peer Pressure and Partnerships," Papers, Rochester, Business - Managerial Economics Research Center 90-07, Rochester, Business - Managerial Economics Research Center.
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  5. Raghuram G. Rajan & Luigi Zingales, 1998. "Power In A Theory Of The Firm," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 113(2), pages 387-432, May.
  6. Effrosyni Diamantoudi, 2003. "Equilibrium binding agreements under diverse behavioral assumptions," Economic Theory, Springer, Springer, vol. 22(2), pages 431-446, 09.
  7. Licun Xue & Rabah Amir & Effrosyni Diamantoudi, 2004. "Merger Performance under Uncertain Efficiency Gains," Working Papers, Fondazione Eni Enrico Mattei 2004.79, Fondazione Eni Enrico Mattei.
  8. Mari Paz Espinosa & Inez Macho-Stadler, 2000. "Endogenous Formation of Partnership with Moral Hazard," Econometric Society World Congress 2000 Contributed Papers 0565, Econometric Society.
  9. Horn, Henrik & Persson, Lars, 1996. "Endogenous Mergers in Concentrated Markets," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1544, C.E.P.R. Discussion Papers.
  10. Banal-Estanol, Albert, 2007. "Information-sharing implications of horizontal mergers," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 25(1), pages 31-49, February.
  11. Demange, Gabrielle & Gale, David, 1985. "The Strategy Structure of Two-sided Matching Markets," Econometrica, Econometric Society, Econometric Society, vol. 53(4), pages 873-88, July.
  12. George J. Mailath & Volker Nocke & Andrew Postlewaite, 2002. "Business Strategy, Human Capital, and Managerial Incentives," PIER Working Paper Archive 03-018, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 23 Jun 2003.
  13. 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, MIT Press, vol. 98(2), pages 185-99, May.
  14. Paolo Fulghieri & Laurie Simon Hodrick, 2006. "Synergies and Internal Agency Conflicts: The Double-Edged Sword of Mergers," Journal of Economics & Management Strategy, Wiley Blackwell, Wiley Blackwell, vol. 15(3), pages 549-576, 09.
  15. Röller, Lars-Hendrik & Stennek, Johan & Verboven, Frank, 2000. "Efficiency Gains from Mergers," Working Paper Series, Research Institute of Industrial Economics 543, Research Institute of Industrial Economics.
  16. Holmstrom, Bengt, 1999. "The Firm as a Subeconomy," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 15(1), pages 74-102, April.
  17. Barros, Pedro Pita, 1998. "Endogenous mergers and size asymmetry of merger participants," Economics Letters, Elsevier, Elsevier, vol. 60(1), pages 113-119, July.
  18. Massimo MOTTA & Helder VASCONCELOS, 2003. "Efficiency Gains and Myopic Antitrust Authority in a Dynamic Merger Game," Economics Working Papers, European University Institute ECO2003/23, European University Institute.
  19. Yi, Sang-Seung, 1997. "Stable Coalition Structures with Externalities," Games and Economic Behavior, Elsevier, Elsevier, vol. 20(2), pages 201-237, August.
  20. Belleflamme, Paul, 2000. "Stable Coalition Structures with Open Membership and Asymmetric Firms," Games and Economic Behavior, Elsevier, Elsevier, vol. 30(1), pages 1-21, January.
  21. Francis Bloch, 1995. "Endogenous Structures of Association in Oligopolies," RAND Journal of Economics, The RAND Corporation, vol. 26(3), pages 537-556, Autumn.
  22. repec:ant:wpaper:1999018 is not listed on IDEAS
  23. Perry, Martin K & Porter, Robert H, 1985. "Oligopoly and the Incentive for Horizontal Merger," American Economic Review, American Economic Association, American Economic Association, vol. 75(1), pages 219-27, March.
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Cited by:
  1. Miguel González-Maestre & Diego Peñarrubia, 2005. "Innovation, merger policy and technology transfer," Investigaciones Economicas, Fundación SEPI, Fundación SEPI, vol. 29(1), pages 181-201, January.

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