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On Merger Profitability and the Intensity of Rivalry

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  • Escrihuela-Villar Marc

    (Departamento de Economia Aplicada, Universitat de les Illes Balears, Edificio Jovellanos Ctra. Valldemossa km 7.5. 07122 Palma de Mallorca, Baleares, Spain)

Abstract

This note considers a general symmetric quantity-setting oligopoly where the “coefficient of cooperation” defined by Cyert and DeGroot (1973, “An Analysis of Cooperation and Learning in a Duopoly Context”. The American Economic Review 63:24–37) is interpreted as the parameter indicating severity of competition. It is obtained that horizontal mergers are more likely to be profitable in a more competitive market structure. Consequently, the results by Salant et al. (1983, “The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium”. The Quarterly Journal of Economics 98 (2):185–99) about merger profitability are sensitive to the assumption of pre-merger Cournot competition.

Suggested Citation

  • Escrihuela-Villar Marc, 2016. "On Merger Profitability and the Intensity of Rivalry," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 16(2), pages 1203-1212, April.
    • Handle: RePEc:bpj:bejeap:v:16:y:2016:i:2:p:1203-1212:n:21
    DOI: 10.1515/bejeap-2015-0209
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    Cited by:

    1. Domenico Buccella & Leonard F. S. Wang, 2021. "Union negotiations, product market cooperation, and profits," Metroeconomica, Wiley Blackwell, vol. 72(1), pages 82-100, February.
    2. Domenico Buccella & Luciano Fanti, 2022. "Downstream competition and profits under different input price bargaining structures," Journal of Economics, Springer, vol. 136(3), pages 251-268, August.
    3. Buccella Domenico & Fanti Luciano, 2019. "Profits Under Centralized Negotiations: The Efficient Bargaining Case," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 19(2), pages 1-8, June.
    4. Escrihuela-Villar Marc & Ferrarese Walter, 2019. "Horizontal Mergers in a Dynamic Cournot Market: Solving the Free Riding Issue Without Efficiency Gains," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 19(4), pages 1-14, October.

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    More about this item

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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