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Convex Costs And The Merger Paradox Revisited

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  • JOHN S. HEYWOOD
  • MATTHEW MCGINTY

Abstract

"Returning to the contention that convex costs provide a resolution to the merger paradox, we show that for reasonable degrees of convexity, the minimum market share needed for merger to be profitable remains close to that associated with linear costs. Moreover, convex costs do not eliminate the free rider problem identified as part of the merger paradox. Finally, we retain convex costs while modeling a firm-by-firm sequential merger process, showing that the paradox constrains a larger share of potential mergers. These findings help reduce the relevance of convex costs as a resolution to the merger paradox." ("JEL" L12, L13) Copyright 2006 Western Economic Association International.

Suggested Citation

  • John S. Heywood & Matthew Mcginty, 2007. "Convex Costs And The Merger Paradox Revisited," Economic Inquiry, Western Economic Association International, vol. 45(2), pages 342-349, April.
  • Handle: RePEc:bla:ecinqu:v:45:y:2007:i:2:p:342-349
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    References listed on IDEAS

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    1. Ramón Faulí-Oller, 1997. "On merger profitability in a cournot setting," Working Papers. Serie AD 1997-03, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
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    9. David Hennessy, 2000. "Cournot Oligopoly Conditions under which Any Horizontal Merger Is Profitable," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 17(3), pages 277-284, November.
    10. Rothschild, R. & Heywood, John S. & Monaco, Kristen, 2000. "Spatial price discrimination and the merger paradox," Regional Science and Urban Economics, Elsevier, vol. 30(5), pages 491-506, September.
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    Citations

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    Cited by:

    1. Yoshio Kamijo & Yasuhiko Nakamura, 2009. "Stable market structures from merger activities in mixed oligopoly with asymmetric costs," Journal of Economics, Springer, vol. 98(1), pages 1-24, September.
    2. Luciano Fanti & Nicola Meccheri, 2012. "Differentiated duopoly and horizontal merger profitability under monopoly central union and convex costs," Discussion Papers 2012/134, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    3. Luciano Fanti & Nicola Meccheri, 2016. "Non-Rigid Wages And Merger Profitability Reversal Under Convex Costs And Centralized Unionization," Bulletin of Economic Research, Wiley Blackwell, vol. 68(4), pages 383-395, October.
    4. Hassan, Ibne & Chidlow, Agnieszka & Romero-Martínez, Ana M., 2016. "Selection, valuation and performance assessment: Are these truly inter-linked within the M&A transactions?," International Business Review, Elsevier, vol. 25(1), pages 255-266.
    5. Artz, Benjamin & Heywood, John S. & McGinty, Matthew, 2009. "The merger paradox in a mixed oligopoly," Research in Economics, Elsevier, vol. 63(1), pages 1-10, March.
    6. Luciano Fanti & Nicola Meccheri, 2012. "Profits and competition in a unionized duopoly model with product differentiation and labour decreasing returns," Discussion Papers 2012/133, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    7. Fanti, Luciano & Meccheri, Nicola, 2014. "Profits and competition under alternative technologies in a unionized duopoly with product differentiation," Research in Economics, Elsevier, vol. 68(2), pages 157-168.
    8. Heywood, John S. & McGinty, Matthew, 2011. "Cross-border mergers in a mixed oligopoly," Economic Modelling, Elsevier, vol. 28(1), pages 382-389.
    9. Gelves, J. Alejandro & Heywood, John S., 2013. "Privatizing by merger: The case of an inefficient public leader," International Review of Economics & Finance, Elsevier, vol. 27(C), pages 69-79.
    10. repec:spr:annopr:v:238:y:2016:i:1:d:10.1007_s10479-015-2099-7 is not listed on IDEAS
    11. repec:ebl:ecbull:v:12:y:2007:i:12:p:1-7 is not listed on IDEAS

    More about this item

    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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