The merger paradox and why aspiration levels let it fail in the laboratory
AbstractWe study the merger paradox, a relative of Harsanyi's bargaining paradox, in an experiment. We examine bilateral mergers in experimental Cournot markets with initially three or four firms. Standard Cournot-Nash equilibrium predicts total outputs well. However, merged firms produce significantly more output than their competitors. As a result, mergers are not unprofitable. By analysing control treatments, we provide an explanation for these results based on the notion of aspiration levels, and show that the same logic also operates when a new firm enters a market. These results have some general consequences for adaptive play in changing environments. Copyright 2007 The Author(s). Journal compilation Royal Economic Society 2007.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Tilburg University in its series Open Access publications from Tilburg University with number urn:nbn:nl:ui:12-193645.
Date of creation: 2007
Date of revision:
Publication status: Published in Economic Journal (2007) v.117, p.1073-1095
Contact details of provider:
Web page: http://www.tilburguniversity.edu/
Other versions of this item:
- Steffen Huck & Kai A. Konrad & Wieland Müller & Hans-Theo Normann, 2007. "The Merger Paradox and why Aspiration Levels Let it Fail in the Laboratory," Economic Journal, Royal Economic Society, vol. 117(522), pages 1073-1095, 07.
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Siegfried Berninghaus & Werner Güth & M. Levati & Jianying Qiu, 2011. "Satisficing search versus aspiration adaptation in sales competition: experimental evidence," International Journal of Game Theory, Springer, vol. 40(1), pages 179-198, February.
- Mark Armstrong & Steffen Huck, 2010.
"Behavioral Economics as Applied to Firms: A Primer,"
Competition Policy International, vol. 6.
- Mark Armstrong & Steffen Huck, 2011. "Behavioral Economics as Applied to Firms: A Primer," Antitrust Chronicle, Competition Policy International, vol. 1.
- Mark Armstrong & Steffen Huck, 2010. "Behavioral Economics as Applied to Firms: A Primer," CESifo Working Paper Series 2937, CESifo Group Munich.
- Armstrong, Mark & Huck, Steffen, 2010. "Behavioral economics as applied to firms: a primer," MPRA Paper 20356, University Library of Munich, Germany.
- Konrad, Kai A., 2010. "Merger profitability in industries with brand portfolios and loyal customers," Discussion Papers, Research Professorship & Project "The Future of Fiscal Federalism" SP II 2010-08, Social Science Research Center Berlin (WZB).
- Huck, S. & Konrad, K.A. & MÃ¼ller, W., 2005.
"Merger Without Costs Advantage,"
2005-019, Tilburg University, Tilburg Law and Economic Center.
- Goppelsroeder, Marie, 2009. "Entry in Collusive Markets: An Experimental Study," MPRA Paper 14707, University Library of Munich, Germany.
- Burkhard C. Schipper & Philippe Raab, 2006.
"Cournot Competition between Teams: An Experimental Study,"
626, University of California, Davis, Department of Economics.
- Raab, Philippe & Schipper, Burkhard C., 2009. "Cournot competition between teams: An experimental study," Journal of Economic Behavior & Organization, Elsevier, vol. 72(2), pages 691-702, November.
- Raab, Philippe & Schipper, Burkhard C., 2007. "Cournot Competition between Teams: An Experimental Study," Working Papers 06-26, University of California at Davis, Department of Economics.
- Philippe Raab & Burkhard C. Schipper, 2004. "Cournot Competition between Teams: An Experimental Study," Bonn Econ Discussion Papers bgse13_2004, University of Bonn, Germany.
- Jordi Brandts & Ayça Ebru Giritligil, 2006.
"Entry and Market Selection of Firms: A Laboratory Study,"
299, Barcelona Graduate School of Economics.
- Brandts, Jordi & Giritligil, Ayça Ebru, 2008. "Entry and market selection of firms: A laboratory study," Journal of Economic Behavior & Organization, Elsevier, vol. 68(3-4), pages 593-612, December.
- Jordi Brandts & Ayça Ebru Giritligil, 2006. "Entry and Market Selection of Firms: A Laboratory Study," UFAE and IAE Working Papers 690.07, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
- Shakun Datta Mago & Emmanuel Dechenaux, 2009. "Price leadership and firm size asymmetry: an experimental analysis," Experimental Economics, Springer, vol. 12(3), pages 289-317, September.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Economists Online Support).
If references are entirely missing, you can add them using this form.