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Profitable horizontal mergers without cost advantage: The role of intenal organization, information and market structure

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  • Huck, S.
  • Konrad, K.A.
  • Müller, W.

    (Tilburg University)

Abstract

Merged firms are typically rather complex organizations. Accordingly, merger has a more profound effect on the structure of a market than simply reducing the number of competitors. We show that this may render horizontal mergers profitable and welfare-improving even if costs are linear. The driving force behind these results, which help to reconcile theory with various empirical findings, is the assumption that information about output decisions flows more freely within a merged firm. This induces a commitment advantage for the merged firm. Copyright (c) The London School of Economics and Political Science 2004.

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Bibliographic Info

Paper provided by Tilburg University in its series Open Access publications from Tilburg University with number urn:nbn:nl:ui:12-143121.

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Date of creation: 2004
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Publication status: Published in Economica (2004) v.71, p.575-587
Handle: RePEc:ner:tilbur:urn:nbn:nl:ui:12-143121

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Web page: http://www.tilburguniversity.edu/

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  1. Farrell, Joseph & Shapiro, Carl, 1990. "Horizontal Mergers: An Equilibrium Analysis," American Economic Review, American Economic Association, vol. 80(1), pages 107-26, March.
  2. Ajeyo Banerjee & E. Woodrow Eckard, 1998. "Are Mega-Mergers Anticompetitive? Evidence from the First Great Merger Wave," RAND Journal of Economics, The RAND Corporation, vol. 29(4), pages 803-827, Winter.
  3. Raymond Deneckere & Carl Davidson, 1985. "Incentives to Form Coalitions with Bertrand Competition," RAND Journal of Economics, The RAND Corporation, vol. 16(4), pages 473-486, Winter.
  4. Ellingsen, Tore, 1994. "On Flexibility in Oligopoly," Working Paper Series in Economics and Finance 21, Stockholm School of Economics.
  5. Cabral, Luis M. B., 2003. "Horizontal mergers with free-entry: why cost efficiencies may be a weak defense and asset sales a poor remedy," International Journal of Industrial Organization, Elsevier, vol. 21(5), pages 607-623, May.
  6. Gaudet, Gerard & Salant, Stephen W, 1991. "Increasing the Profits of a Subset of Firms in Oligopoly Models with Strategic Substitutes," American Economic Review, American Economic Association, vol. 81(3), pages 658-65, June.
  7. Pesendorfer, Martin, 2003. " Horizontal Mergers in the Paper Industry," RAND Journal of Economics, The RAND Corporation, vol. 34(3), pages 495-515, Autumn.
  8. 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.
  9. R. Glenn Hubbard & Darius Palia, 1999. "A Reexamination of the Conglomerate Merger Wave in the 1960s: An Internal Capital Markets View," Journal of Finance, American Finance Association, vol. 54(3), pages 1131-1152, 06.
  10. 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.
  11. Hamilton, J.H. & Slutsky, S.M., 1988. "Endogenous Timing In Duopoly Games: Stackelberg Or Cournot Equilibria," Papers 88-4, Florida - College of Business Administration.
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Cited by:
  1. Yim, Hyung Rok, 2008. "Quality shock vs. market shock: Lessons from recently established rapidly growing U.S. startups," Journal of Business Venturing, Elsevier, vol. 23(2), pages 141-164, March.
  2. Kjell Erik Lommerud & Odd Rune Straume & Lars Sørgard, 2002. "Downstream Merger with Oligopolistic Input Suppliers," CESifo Working Paper Series 733, CESifo Group Munich.
  3. Lommerud, Kjell Erik & Sørgard, Lars & Straume, Odd Rune, 2003. "National versus International Mergers in Unionised Oligopoly," CEPR Discussion Papers 4040, C.E.P.R. Discussion Papers.
  4. José Méndez-Naya, 2008. "Merger profitability in mixed oligopoly," Journal of Economics, Springer, vol. 94(2), pages 167-176, July.
  5. Christou, Charalambos & Kotseva, Rossitsa & Vettas, Nikolaos, 2007. "Pricing, Investments and Mergers with Intertemporal Capacity Constraints," CEPR Discussion Papers 6433, C.E.P.R. Discussion Papers.
  6. BOCCARD, Nicolas, 2009. "On efficiency, concentration and welfare," CORE Discussion Papers 2009040, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  7. Ziss, Steffen, 2007. "Hierarchies, intra-firm competition and mergers," International Journal of Industrial Organization, Elsevier, vol. 25(2), pages 237-260, April.
  8. Huck, S. & Konrad, K.A. & Müller, W., 2005. "Merger Without Costs Advantage," Discussion Paper 2005-019, Tilburg University, Tilburg Law and Economic Center.
  9. Artz, Benjamin & Heywood, John S. & McGinty, Matthew, 2009. "The merger paradox in a mixed oligopoly," Research in Economics, Elsevier, vol. 63(1), pages 1-10, March.
  10. repec:ebl:ecbull:v:12:y:2007:i:12:p:1-7 is not listed on IDEAS
  11. Rasch, Alexander & Wambach, Achim, 2009. "Internal decision-making rules and collusion," Journal of Economic Behavior & Organization, Elsevier, vol. 72(2), pages 703-715, November.
  12. José Méndez Naya, 2007. "Privatización y fusiones en oligopolios mixtos," Estudios de Economia, University of Chile, Department of Economics, vol. 34(1 Year 20), pages 37-52, June.

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