Cournot Oligopoly Conditions Under Which Any Horizontal Merger is Profitable

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Cournot Oligopoly Conditions Under Which Any Horizontal Merger is Profitable

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Hennessy, David A.

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David A. Hennessy

Abstract

Findings in economic theory suggest that horizontal mergers involving firms with aggregate market share less than 50% are unlikely to be motivated by the consequent reduction in competitivity. The results arise because, absent cost efficiencies, quantity-setting firms in small mergers are impoverished by the merger. We demonstrate that this conclusion is a consequence of the strong restrictions imposed on the demand function, and we identify a well-behaved demand function such that any set of merging firms benefits from the reduction in competition even when there are no cost efficiencies.

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Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 1699.

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Date of creation: 14 Jan 2000
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Publication status: Published in Review of Industrial Organization, November 2000, Vol. 17, pp. 277-284.
Handle: RePEc:isu:genres:1699

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Article
- David Hennessy, 2000. "Cournot Oligopoly Conditions under which Any Horizontal Merger Is Profitable," Review of Industrial Organization, Springer, vol. 17(3), pages 277-284, November. [Downloadable!] (restricted)

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

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. [Downloadable!] (restricted)
Kamien, Morton I. & Zang, Israel, 1991. "Competitively cost advantageous mergers and monopolization," Games and Economic Behavior, Elsevier, vol. 3(3), pages 323-338, August. [Downloadable!] (restricted)
Other versions:
- Morton I. Kamien & Israel Zang, 1988. "Competitively Cost Advantageous Mergers and Monopolization," Discussion Papers 799, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
Farrell, Joseph & Shapiro, Carl, 1990. "Horizontal Mergers: An Equilibrium Analysis," American Economic Review, American Economic Association, vol. 80(1), pages 107-26, March. [Downloadable!] (restricted)
Other versions:
- Joseph Farrell and Carl Shapiro., 1988. "Horizontal Mergers: An Equilibrium Analysis," Economics Working Papers 8880, University of California at Berkeley.
- Farrell, J. & Shapiro, C., 1989. "Horizontal Mergers: An Equilibrium Analysis," Papers e-89-3, Stanford - Hoover Institution.
- Farrell, J. & Shapiro, C., 1988. "Horizontal Mergers: An Equilibrium Analysis," Papers 17, Princeton, Woodrow Wilson School - Discussion Paper.
Kamien, Morton I & Zang, Israel, 1990. "The Limits of Monopolization through Acquisition," The Quarterly Journal of Economics, MIT Press, vol. 105(2), pages 465-99, May. [Downloadable!] (restricted)
Other versions:
- 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. [Downloadable!]
- Morton I. Kamien & Israel Zang, 1987. "The Limits of Monopolization Through Acquisition," Discussion Papers 754, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

D. Dragone & L. Lambertini & A. Mantovani, 2006. "Horizontal Mergers with Scale Economies," Working Papers 571, Dipartimento Scienze Economiche, Universita' di Bologna. [Downloadable!]
Marina Tsygankova, 2007. "When is Mighty Gazprom Good for Russia?," Discussion Papers 526, Research Department of Statistics Norway. [Downloadable!]
Berardino Cesi, 2006. "Profitability of Horizontal Mergers in Trigger Strategy Game," Discussion Papers in Economics 06/4, Department of Economics, University of Leicester. [Downloadable!]
Other versions:
- Cesi Berardino, 2006. "Profitability of Horizontal Mergers in Trigger Strategy Game," Departmental Working Papers 229, Tor Vergata University, CEIS. [Downloadable!]
Tina Kao & Flavio Menezes, 2009. "Welfare Enhancing Mergers Under Product Differentiation," ANUCBE School of Economics Working Papers 2009-508, Australian National University, College of Business and Economics, School of Economics. [Downloadable!]
Other versions:
- Tina Kao & Flavio Menezes, 2007. "Welfare Enhancing Mergers under Product Differentiation," Discussion Papers Series 350, School of Economics, University of Queensland, Australia. [Downloadable!]
R. Cellini & L. Lambertini, 2003. "Capital Accumulation and Horizontal Mergers in Differential Oligopoly Games," Working Papers 477, Dipartimento Scienze Economiche, Universita' di Bologna. [Downloadable!]
D. Dragone & L. Lambertini & A. Mantovani, 2007. "Antitrust Guidelines: A Simple Operational Method for Evaluating Horizontal Mergers," Working Papers 591, Dipartimento Scienze Economiche, Universita' di Bologna. [Downloadable!]
Oliver Budzinski & Jürgen-Peter Kretschmer, 2009. "Implications of Unprofitable Horizontal Mergers: A Positive External Effect does not Suffice to Clear a Merger!," Working Papers 84/09, University of Southern Denmark, Department of Environmental and Business Economics. [Downloadable!]

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