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Mergers to Monopoly

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  • Mihkel M. Tombak

Abstract

Horizontal mergers between firms that have different costs are examined. Owners can transfer technology to an acquired firm and decide whether to consolidate or operate their firms as separate entities in the product market. Thus mergers can exhibit both efficiencies and a market-power effect. The prices of target firms are determined via a bargaining game. An equilibrium sequence of mergers entails the largest firm targeting the next largest rival firm. Initially, this sequence of mergers with technology transfers involves no consolidations and improves welfare. Ultimately, the acquisitions lead to consolidation and may decrease total welfare. Copyright (c) 2002 Massachusetts Institute of Technology.

Suggested Citation

  • Mihkel M. Tombak, 2002. "Mergers to Monopoly," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 11(3), pages 513-546, September.
  • Handle: RePEc:bla:jemstr:v:11:y:2002:i:3:p:513-546
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    References listed on IDEAS

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    1. Vincent Aussilloux, 1998. "Investissement direct à l'étranger et entrée séquentielle sur le marché," Revue Économique, Programme National Persée, vol. 49(3), pages 607-615.
    2. Motta, Massimo, 1994. "International trade and investments in a vertically differentiated industry," International Journal of Industrial Organization, Elsevier, vol. 12(2), pages 179-196, June.
    3. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June.
    4. Edward M Graham, 1998. "Market Structure and the Multinational Enterprise: A Game-theoretic Approach1," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 29(1), pages 67-83, March.
    5. Chwo-Ming J Yu & Kiyohiko Ito, 1988. "Oligopolistic Reaction and Foreign Direct Investment: The Case of the U.S. Tire and Textiles Industries," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 19(3), pages 449-460, September.
    6. Narayana R. Kocherlakota, 1996. "The Equity Premium: It's Still a Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(1), pages 42-71, March.
    7. Abhijit V. Banerjee, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, Oxford University Press, vol. 107(3), pages 797-817.
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    Cited by:

    1. Jeremiah Harris & Ralph Siebert, 2015. "Driven by the Discount Factor: Impact of Mergers on Market Performance in the Semiconductor Industry," CESifo Working Paper Series 5199, CESifo Group Munich.
    2. Oberg, Christina & Holtstrom, Johan, 2006. "Are mergers and acquisitions contagious?," Journal of Business Research, Elsevier, vol. 59(12), pages 1267-1275, November.
    3. Mialon, Sue H., 2008. "Efficient horizontal mergers: The effects of internal capital reallocation and organizational form," International Journal of Industrial Organization, Elsevier, pages 861-877.
    4. M. Pilar Socorro, 2009. "R&D investment as a signal in corporate takeovers," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 30(5), pages 335-350.
    5. Andreas Freytag & Dirk Schiereck & Thomas W. Thomas, 2005. "Consolidation and Market Power of Energy Utilities - The case of US-American and German Utility Takeovers," Jenaer Schriften zur Wirtschaftswissenschaft (Expired!) 07/2005, Friedrich-Schiller-Universität Jena, Wirtschaftswissenschaftliche Fakultät.
    6. James Gaisford & Stefan Lutz, 2007. "A Multi-Product Framework Generating Waves of Mergers and Divestitures," ICER Working Papers 36-2007, ICER - International Centre for Economic Research.
    7. Bjorvatn, Kjetil, 2004. "Economic integration and the profitability of cross-border mergers and acquisitions," European Economic Review, Elsevier, vol. 48(6), pages 1211-1226, December.
    8. Fumagalli, Eileen & Nilssen, Tore, 2008. "Waiting to Merge," Memorandum 13/2008, Oslo University, Department of Economics.
    9. Jacek Prokop, 2009. "Monopolisation of triopoly – revisited," International Journal of Computational Economics and Econometrics, Inderscience Enterprises Ltd, vol. 1(2), pages 113-125.
    10. Inderst, Roman & Wey, Christian, 2004. "The incentives for takeover in oligopoly," International Journal of Industrial Organization, Elsevier, vol. 22(8-9), pages 1067-1089, November.
    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.
    12. repec:eee:indorg:v:53:y:2017:i:c:p:32-62 is not listed on IDEAS
    13. Ziss, Steffen, 2007. "Hierarchies, intra-firm competition and mergers," International Journal of Industrial Organization, Elsevier, vol. 25(2), pages 237-260, April.
    14. Tombak, Mihkel M., 2006. "Strategic asymmetry," Journal of Economic Behavior & Organization, Elsevier, vol. 61(3), pages 339-350, November.
    15. Meza, Sergio & Tombak, Mihkel, 2009. "Endogenous location leadership," International Journal of Industrial Organization, Elsevier, vol. 27(6), pages 687-707, November.

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