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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.

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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. 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, MIT Press, vol. 98(2), pages 185-99, May.
  2. Farrell, Joseph & Shapiro, Carl, 1990. "Horizontal Mergers: An Equilibrium Analysis," American Economic Review, American Economic Association, American Economic Association, vol. 80(1), pages 107-26, March.
  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. Perry, Martin K & Porter, Robert H, 1985. "Oligopoly and the Incentive for Horizontal Merger," American Economic Review, American Economic Association, American Economic Association, vol. 75(1), pages 219-27, March.
  5. 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, American Economic Association, vol. 81(3), pages 658-65, June.
  6. Hamilton, J.H. & Slutsky, S.M., 1988. "Endogenous Timing In Duopoly Games: Stackelberg Or Cournot Equilibria," Papers, Florida - College of Business Administration 88-4, Florida - College of Business Administration.
  7. Ellingsen, Tore, 1995. "On flexibility in oligopoly," Economics Letters, Elsevier, Elsevier, vol. 48(1), pages 83-89, April.
  8. 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.
  9. Luis M. B. Cabral, 2001. "Horizontal Mergers With Free-Entry: Why Cost Efficiencies May Be a Weak Defense and Asset Sales a Poor Remedy," Working Papers, New York University, Leonard N. Stern School of Business, Department of Economics 01-05, New York University, Leonard N. Stern School of Business, Department of Economics.
  10. 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, American Finance Association, vol. 54(3), pages 1131-1152, 06.
  11. Martin Pesendorfer, 1998. "Horizontal Mergers in the Paper Industry," NBER Working Papers 6751, National Bureau of Economic Research, Inc.
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Cited by:
  1. Kjell Erik Lommerud & Odd Rune Straume & Lars Sørgard, 2002. "Downstream Merger with Oligopolistic Input Suppliers," CESifo Working Paper Series 733, CESifo Group Munich.
  2. Huck, S. & Konrad, K.A. & Müller, W., 2005. "Merger Without Costs Advantage," Discussion Paper, Tilburg University, Tilburg Law and Economic Center 2005-019, Tilburg University, Tilburg Law and Economic Center.
  3. Ziss, Steffen, 2007. "Hierarchies, intra-firm competition and mergers," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 25(2), pages 237-260, April.
  4. Christou, Charalambos & Kotseva, Rossitsa & Vettas, Nikolaos, 2007. "Pricing, Investments and Mergers with Intertemporal Capacity Constraints," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6433, C.E.P.R. Discussion Papers.
  5. Rasch, Alexander & Wambach, Achim, 2009. "Internal decision-making rules and collusion," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 72(2), pages 703-715, November.
  6. Lommerud, Kjell Erik & Sørgard, Lars & Straume, Odd Rune, 2003. "National versus International Mergers in Unionised Oligopoly," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4040, C.E.P.R. Discussion Papers.
  7. BOCCARD, Nicolas, 2009. "On efficiency, concentration and welfare," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 2009040, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  8. José Méndez Naya, 2007. "Privatización y fusiones en oligopolios mixtos," Estudios de Economia, University of Chile, Department of Economics, University of Chile, Department of Economics, vol. 34(1 Year 20), pages 37-52, June.
  9. Artz, Benjamin & Heywood, John S. & McGinty, Matthew, 2009. "The merger paradox in a mixed oligopoly," Research in Economics, Elsevier, Elsevier, vol. 63(1), pages 1-10, March.
  10. José Méndez-Naya, 2008. "Merger profitability in mixed oligopoly," Journal of Economics, Springer, Springer, vol. 94(2), pages 167-176, July.
  11. repec:ebl:ecbull:v:12:y:2007:i:12:p:1-7 is not listed on IDEAS
  12. 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.

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