Cost-saving or Cost-enhancing Mergers: the Impact of the Distribution of Roles in Oligopoly
AbstractWe consider ï¬rms perfectly symmetrical on production costs in the pre-merger game but the cost of the merged entity may be amended due to the anti-competitive effects of the merger. The lack of empirical precision concerning the effect of the merger on production costs (Scherer, 1980 or Tichy, 2002) justiï¬es our theoretical model in which we do not specify a priori the exact production cost in the post merger game. Two ï¬rms in Stackelberg oligopoly game take part in the merger. The aim of this paper is to identify under which conditions on the cost the merger is privately proï¬table and socially desirable when ï¬rms in the coalition are either leaders or followers. We show that a merger could remain proï¬table even if the merged entity suffers from efficiency losses and we identify the condition on efficiency gains below which the merger takes place with the exclusion of all rivals. Among all possible cases, a proï¬table merger between two ï¬rms of different roles (leader & follower) could potentially give rise to more efficiency losses than the one encompassing ï¬rms of the same role. Moreover, proï¬table mergers can induce either an increase or a decrease in social welfare except for the case where two leaders decide to merge. Consequently this paper argues that Competition Authorities must supervise more closely two-ï¬rm mergers including either one or two followers.
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Bibliographic InfoPaper provided by TEPP Working Papers in its series Papers with number 2010-18.
Date of creation: 18 Dec 2010
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Other versions of this item:
- Nicolas Le Pape & Kai Zhao, 2010. "Cost-saving or Cost-enhancing Mergers: the Impact of the Distribution of Roles in Oligopoly," Working Papers halshs-00812080, HAL.
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-07-27 (All new papers)
- NEP-COM-2011-07-27 (Industrial Competition)
- NEP-EFF-2011-07-27 (Efficiency & Productivity)
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