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Horizontal Merger With An Inefficient Leader

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  • JUAN ALEJANDRO GELVES

Abstract

In this paper we analyze two‐firm horizontal mergers between an inefficient leader and an efficient follower. The merger is profitable and may decrease price (increase welfare) if the market size is large enough. Furthermore, a merger involving a leader which decreases price hurts outsider firms and therefore resolves the free‐rider component of the merger paradox. Finally, it is shown that, when the market is large, these mergers always increase welfare regardless of the size of the cost asymmetry between leader and follower.

Suggested Citation

  • Juan Alejandro Gelves, 2010. "Horizontal Merger With An Inefficient Leader," Manchester School, University of Manchester, vol. 78(5), pages 379-394, September.
    • Handle: RePEc:bla:manchs:v:78:y:2010:i:5:p:379-394
    DOI: 10.1111/j.1467-9957.2009.02144.x
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    References listed on IDEAS

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    Cited by:

    1. Garcia, Arturo & Leal, Mariel & Lee, Sang-Ho & Park, Chul-Hi, 2024. "Merger incentive and strategic corporate social responsibility by a multiproduct corporation," International Review of Economics & Finance, Elsevier, vol. 91(C), pages 193-206.
    2. Gamal Atallah, 2015. "Multi-Firm Mergers with Leaders and Followers," Working Papers E1501E, University of Ottawa, Department of Economics.
    3. 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.
    4. Marc Escrihuela-Villar, 2019. "On Mergers in a Stackelberg Market with Asymmetric Convex Costs," Journal of Industry, Competition and Trade, Springer, vol. 19(1), pages 21-32, March.
    5. Manel Antelo & David Peón, 2019. "On Cooperation Through Alliances and Mergers," Journal of Industry, Competition and Trade, Springer, vol. 19(2), pages 263-279, June.

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