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- Delegation And Mergers In Oligopoly

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Author Info

  • Javier M. López Cuñat

    (Universidad de Alicante)

  • Miguel González-Maestre

    (Universidad Autónoma de Barcelona)

Abstract

In this paper we analyze the effect strategic delegation on the profitability of mergers in the context of a Cournot oligopoly with linear demand and cost functions. It is assumed that, after the merging process is completed, the owner of every independent firm decides its managerial incentive for his manager. We show that the required fraction of merging firms for a merger to be profitable, in our model with delegation, is substantially smaller that without delegation.

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File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-1999-03.pdf
File Function: Fisrt version / Primera version, 1999
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Bibliographic Info

Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 1999-03.

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Length: 9 pages
Date of creation: Mar 1999
Date of revision:
Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:1999-03

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Related research

Keywords: Strategic Delegation; Mergers; Cournot Oligopoly;

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References

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  1. 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.
  2. Michael L. Katz., 1991. "Game-Playing Agents: Unobservable Contracts as Precommitments," Economics Working Papers 91-172, University of California at Berkeley.
  3. Fershtman, Chaim & Kalai, Ehud, 1997. "Unobserved Delegation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(4), pages 763-74, November.
  4. Jensen, Michael C & Murphy, Kevin J, 1990. "Performance Pay and Top-Management Incentives," Journal of Political Economy, University of Chicago Press, vol. 98(2), pages 225-64, April.
  5. Vickers, John, 1985. "Delegation and the Theory of the Firm," Economic Journal, Royal Economic Society, vol. 95(380a), pages 138-47, Supplemen.
  6. Murphy, Kevin J., 1985. "Corporate performance and managerial remuneration : An empirical analysis," Journal of Accounting and Economics, Elsevier, vol. 7(1-3), pages 11-42, April.
  7. Ramon Fauli-Oller & Massimo Motta, 1996. "Managerial Incentives for Takeovers," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 5(4), pages 497-514, December.
  8. Javier M. López Cuñat & Miguel González-Maestre, 1999. "- Delegation And Endogenous Mergers In Oligopoly," Working Papers. Serie AD 1999-01, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  9. Bresnahan, Timothy F., 1989. "Empirical studies of industries with market power," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 17, pages 1011-1057 Elsevier.
  10. Fershtman, Chaim & Judd, Kenneth L, 1987. "Equilibrium Incentives in Oligopoly," American Economic Review, American Economic Association, vol. 77(5), pages 927-40, December.
  11. Conyon, Martin J., 1997. "Corporate governance and executive compensation," International Journal of Industrial Organization, Elsevier, vol. 15(4), pages 493-509, July.
  12. 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.
  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, vol. 98(2), pages 185-99, May.
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