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Profitability of Horizontal Mergers in Trigger Strategy Game

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CESI BERARDINO

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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.

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Paper provided by Tor Vergata University, CEIS in its series Departmental Working Papers with number 229.

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Date of creation: Mar 2006
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Handle: RePEc:rtv:ceiswp:229

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  1. Dockner, Engelbert J. & Gaunersdorfer, Andrea, 2001. "On the profitability of horizontal mergers in industries with dynamic competition," Japan and the World Economy, Elsevier, vol. 13(3), pages 195-216, August. [Downloadable!] (restricted)
  2. Hennessy, David A., 2000. "Cournot Oligopoly Conditions Under Which Any Horizontal Merger is Profitable," Staff General Research Papers 1699, Iowa State University, Department of Economics.
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  3. Kamien, Morton I & Zang, Israel, 1990. "The Limits of Monopolization through Acquisition," The Quarterly Journal of Economics, MIT Press, vol. 105(2), pages 465-99, May. [Downloadable!] (restricted)
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  4. Hassan Benchekroun, 2003. "The closed-loop effect and the profitability of horizontal mergers," Canadian Journal of Economics, Canadian Economics Association, vol. 36(3), pages 546-565, August. [Downloadable!] (restricted)
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