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Strategic Buyers, Horizontal Mergers and Synergies: An Experimental Investigation

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  • Douglas D. Davis

    () (Department of Economics, VCU School of Business)

  • Bart J. Wilson

    () (Interdisciplinary Center for Economic Science, George Mason University)

Abstract

This paper reports an experiment designed to evaluate interrelationships between strategic buyers, market power and merger-induced synergies. The experiment consists of 40 posted-offer quadropolies. Treatments include the use of simulated or human buyers, seller consolidations and merger-induced fixed cost and unit cost synergies. In the simulated-buyer markets we observe behavior generally consistent with comparative static predictions: prices rise post-merger, and unit (but not fixed) cost synergies may exert some price-moderating effect. The addition of powerful buyers changes results markedly. Although prices are lower in the human buyer markets, outcomes are more variable and predicted comparative static effects are no longer observed.

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Bibliographic Info

Paper provided by VCU School of Business, Department of Economics in its series Working Papers with number 0601.

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Length: 37 pages
Date of creation: Jan 2006
Date of revision:
Handle: RePEc:vcu:wpaper:0601

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Citations

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Cited by:
  1. 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).
  2. Douglas Davis & Oleg Korenok & Robert Reilly, 2009. "Re-matching, information and sequencing effects in posted offer markets," Experimental Economics, Springer, vol. 12(1), pages 65-86, March.
  3. Douglas D. Davis, 2006. "Pure Numbers Effects, Market Power, and Tacit Collusion in Posted Offer Markets," Working Papers 0603, VCU School of Business, Department of Economics, revised Jan 2009.

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