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Profitability of Horizontal Mergers in Trigger Strategy Game

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  • Berardino Cesi

Abstract

It is shown that, in a dynamic competition, an exogenous horizontal merger is profitable even if a small share of active firms merge. However, each firm has incentive to remain outside the merger because it would benefit more (Insiders’dilemma). We show that in an infinite repeated game in which the firms use trigger strategies an exogenous bilateral merger can be profitable and the Insiders’dilemma is mitigated.

Suggested Citation

  • Berardino Cesi, 2006. "Profitability of Horizontal Mergers in Trigger Strategy Game," Discussion Papers in Economics 06/4, Division of Economics, School of Business, University of Leicester.
    • Handle: RePEc:lec:leecon:06/4
    as

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    File URL: https://www.le.ac.uk/economics/research/RePEc/lec/leecon/dp06-4.pdf
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    References listed on IDEAS

    as
    1. Perry, Martin K & Porter, Robert H, 1985. "Oligopoly and the Incentive for Horizontal Merger," American Economic Review, American Economic Association, vol. 75(1), pages 219-227, March.
    2. Steffen Huck & Kai A. Konrad & Wieland Müller, 2004. "Profitable Horizontal Mergers without Cost Advantages: The Role of Internal Organization, Information and Market Structure," Economica, London School of Economics and Political Science, vol. 71(284), pages 575-587, November.
    3. Stigler, George J., 1983. "The Organization of Industry," University of Chicago Press Economics Books, University of Chicago Press, number 9780226774329, September.
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    More about this item

    Keywords

    Horizontal mergers; Insiders’ dilemma; trigger strategy;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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