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The Incentives for Takeover in Oligopoly

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  • Roman Inderst
  • Christian Wey

Abstract

This paper presents a model of takeover incentives in an oligopolistic industry, which,in contrast to previous approaches, takes both insiders' and outsiders' gains from anincrease in industry concentration into account. Our main application is to comparetakeover incentives in a differentiated Cournot and Bertrand oligopoly model withlinear demand and costs. We provide a complete analysis for arbitrary numbers of firms,complements and substitutes, and degrees of product differentiation. An increase inconcentration is more likely under Cournot competition if products are complementsand more likely under Bertrand competition if products are substitutes. Moreover, asproducts become closer substitutes, a takeover becomes more likely under Bertrand andless likely under Cournot competition. ZUSAMMENFASSUNG - (Übernahmeanreize im Oligopol) In dieser Arbeit wird ein Modell zur Analyse von Fusionsanreizen vorgestellt, in dem - im Gegensatz zu vorhergehenden Untersuchungen - sowohl die Gewinnzuwächse der an der Fusion beteiligten Firmen als auch die Gewinnveränderungen der Konkurrenzunternehmen die Übernahmewahrscheinlichkeit bestimmen. Die wichtigste Anwendung ist der Vergleich der Übernahmeanreize im Cournot- und Bertrand-Oligopol mit differenzierten Gütern und linearen Nachfrage- und Kostenfunktionen. Die Arbeit bietet eine vollständige Analyse für eine beliebige Anzahl von Unternehmen, komplementäre und substituierbare Güter und unterschiedliche Grade der Produktdifferenzierung. Eine Zunahme der Konzentration in einer Industrie ist wahrscheinlicher bei Cournot-Konkurrenz, wenn die Güter komplementär sind, und wahrscheinlicher bei Bertrand-Konkurrenz, wenn die Güter substituierbar sind. Des weiteren steigt (sinkt) die Übernahmewahrscheinlichkeit mit zunehmender Substituierbarkeit der Güter bei Bertrand- (Cournot-) Konkurrenz.

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Bibliographic Info

Paper provided by Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG) in its series CIG Working Papers with number FS IV 01-24.

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Length: 51 pages
Date of creation: Dec 2001
Date of revision:
Publication status: Published in the International Journal of Industrial Organization , Vol. 22(8-9), Nov. 2004, pp. 1067-1089.
Handle: RePEc:wzb:wzebiv:fsiv01-24

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Keywords: Merger; Takeover; Bidding; Oligopoly;

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References

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Citations

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Cited by:
  1. Jozsef Molnar, 2002. "Preemptive Horizontal Mergers: Theory and Evidence," IEHAS Discussion Papers 0213, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  2. Roberto Burguet & Ramon Caminal, 2012. "Bargaining failures and merger policy," UFAE and IAE Working Papers 901.12, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  3. Albert Banal-Estañol & Paul Heidhues & Rainer Nitsche & Jo Seldeslachts, 2006. "Merger Clusters during Economic Booms," CIG Working Papers SP II 2006-17, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  4. Granier, Laurent & Podesta, Marion, 2010. "Bundling and Mergers in Energy Markets," Energy Economics, Elsevier, vol. 32(6), pages 1316-1324, November.
  5. Felix Höffler, 2008. "On the consistent use of linear demand systems if not all varieties are available," Economics Bulletin, AccessEcon, vol. 4(14), pages 1-5.
  6. Rosato, Antonio, 2008. "“Matching Auctions” for Hostile Takeovers: A Model with Endogenous Target," MPRA Paper 15083, University Library of Munich, Germany, revised 07 Jan 2009.
  7. Albert Banal‐Estañol & Paul Heidhues & Rainer Nitsche & Jo Seldeslachts, 2010. "Screening And Merger Activity," Journal of Industrial Economics, Wiley Blackwell, vol. 58(4), pages 794-817, December.
  8. Christos Cabolis & Constantine Manasakis & Emmanuel Petrakis, 2008. "Horizontal Mergers and Acquisitions with Endogenous Efficiency Gains," Working Papers 0817, University of Crete, Department of Economics.
  9. Marco Pagnozzi & Antonio Rosato, 2014. "Entry by Takeover: Auctions vs. Negotiations," CSEF Working Papers 353, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  10. repec:ebl:ecbull:v:4:y:2008:i:14:p:1-5 is not listed on IDEAS
  11. Roland Kirstein, 2013. "Fight or buy? A comparison of internationalization strategies," FEMM Working Papers 130003, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.

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