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Downstream merger with oligopolistic input suppliers

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  • Lommerud, Kjell Erik
  • Straume, Odd Rune
  • Sørgard, Lars

Abstract

We examine how a downstream merger affects input prices and, in turn, the profitability of such a merger under Cournot competition with differentiated products. Input suppliers can be interpreted as ordinary upstream firms, or trade unions organising workers. If the input suppliers are plant-specific, we find that a merger is more profitable than in a corresponding model with exogenous input prices. In contrast to the received literature, we find that it can be more profitable to take part in a merger than being an outsider. For firm-specific input suppliers, on the other hand, results are reversed. We apply our model to endogenous merger formation in an international oligopoly, and show that the equilibrium market structure is likely to be characterised by cross-border merger. -- Wir untersuchen, inwiefern nachgelagerte Fusionen Inputpreise erhöhen und wie diese wiederum die Fusionen bei Cournot-Wettbewerb mit unterschiedlichen Produkten beeinflussen. Inputanbieter können als normale vorgelagerte Firmen oder als Gewerkschaften, die Arbeiter organisieren interpretiert werden. Wenn die Inputanbieter werksspezifisch sind, finden wir, daß eine Fusion profitabler ist, als in einem vergleichbaren Modell mit exogenen Inputpreisen. Im Gegensatz zur herkömmlichen Literatur finden wir, daß es profitabler sein kann an einer Fusion teilzunehmen, denn ein Außenstehender zu sein. Für firmenspezifische Inputanbieter andererseits, ist das Ergebnis umgekehrt. Wir wenden unser Modell auf endogene Fusionsformierung in einem internationalen Oligopol an und zeigen, daß die Gleichgewichtsmarktstruktur wahrscheinlich durch grenzüberschreitende Fusionen gekennzeichnet ist.

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Bibliographic Info

Paper provided by Social Science Research Center Berlin (WZB) in its series Discussion Papers, various Research Units with number FS IV 01-22.

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Date of creation: 2002
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Handle: RePEc:zbw:wzbdiv:fsiv0122

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Keywords: merger profitability; input suppliers; trade unions; cross-border merger;

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References

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  1. Baye, Michael R & Crocker, Keith J & Ju, Jiandong, 1996. "Divisionalization, Franchising, and Divestiture Incentives in Oligopoly," American Economic Review, American Economic Association, vol. 86(1), pages 223-36, March.
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  8. Lommerud, K.E. & Straume, O.R. & Sorgard, L., 2000. "Merger Profitability in Unionized Oligopoly," Norway; Department of Economics, University of Bergen 1000, Department of Economics, University of Bergen.
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  10. Javier M. López Cuñat & Miguel González-Maestre, 1999. "- Delegation And Mergers In Oligopoly," Working Papers. Serie AD 1999-03, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
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  18. repec:fth:calaec:10-00 is not listed on IDEAS
  19. Juan Carlos Bárcena-Ruiz & María Begoña Garzón, 2000. "Corporate merger, organizational form, and control of labor," Spanish Economic Review, Springer, vol. 2(2), pages 129-144.
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Cited by:
  1. Lukach, R. & Plasmans, J.E.J., 2002. "Measuring Knowledge Spillovers using Patent Citations: Evidence from the Belgian Firm's Data," Open Access publications from Tilburg University urn:nbn:nl:ui:12-92281, Tilburg University.

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