Mergers In A Partially Cartelized Market
AbstractThe paper studies a Partial Cartel model where only a subset of firms colludes. In this model, firms' ability to collude depends on the discount factor. In addition, as hardly any attention has been given by the literature to the case where mergers take place in a collusive framework, the purpose of this paper is to analyze the competitive effects of horizontal mergers on profits and welfare in a Partially Cartelized market. We show that both mergers among fringe and cartel firms increase market price. Regarding merger profitability, the discount factor decreases cartel members' merger profitability. However, the higher cartel members' discount factor, the more fringe firms will be willing to merge. An example of this could be the intense wave of mergers among oil firms that coincided with a large period of high oil prices caused by the OPEC production cuts.
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Bibliographic InfoPaper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2003-29.
Length: 27 pages
Date of creation: Aug 2003
Date of revision:
Publication status: Published by Ivie
collusion; partial cartels; trigger strategies;
Find related papers by JEL classification:
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
- L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
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- Sylvie Thoron, 1998. "Formation of a Coalition-Proof Stable Cartel," Canadian Journal of Economics, Canadian Economics Association, vol. 31(1), pages 63-76, February.
- Huck, Steffen & Konrad, Kai A. & Muller, Wieland, 2001. "Big fish eat small fish: on merger in Stackelberg markets," Economics Letters, Elsevier, vol. 73(2), pages 213-217, November.
- Xavier Vives, 2001. "Oligopoly Pricing: Old Ideas and New Tools," MIT Press Books, The MIT Press, edition 1, volume 1, number 026272040x, December.
- Davidson, Carl & Deneckere, Raymond, 1984. "Horizontal mergers and collusive behavior," International Journal of Industrial Organization, Elsevier, vol. 2(2), pages 117-132, June.
- Pedro Mendi & Róbert F. Veszteg, .
"Sustainability of Collusion: Evidence from the Late 19th Century Basque Iron and Steel Industry,"
Faculty Working Papers
04/07, School of Economics and Business Administration, University of Navarra.
- Pedro Mendi & Róbert F. Veszteg, 2009. "Sustainability of collusion: evidence from the late 19th century basque iron and steel industry," Investigaciones Economicas, Fundación SEPI, vol. 33(3), pages 385-405, September.
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