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Industry structural inefficiency and potential gains from mergers and break-ups: A comprehensive approach

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  • Peyrache, Antonio

Abstract

An efficiency indicator of industry configuration (allowing for entry/exit of firms) is presented which accounts for four sources components: (1) size inefficiencies arising from firms which can be conveniently split into smaller units; (2) efficiency gains realized through merger of firms; (3) re-allocation of inputs and outputs among firms; (4) technical inefficiencies. The indicator and its components are computed using linear and mixed-integer programming (data envelopment analysis models). A method to monitor the evolution of these components in time is introduced. Data on hospitals in Australia show that technical inefficiency of hospitals accounts for less than 15% of total industry inefficiency, with 40% attributable to size inefficiencies and the rest to potential mergers and re-allocation effects.

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  • Peyrache, Antonio, 2013. "Industry structural inefficiency and potential gains from mergers and break-ups: A comprehensive approach," European Journal of Operational Research, Elsevier, vol. 230(2), pages 422-430.
  • Handle: RePEc:eee:ejores:v:230:y:2013:i:2:p:422-430
    DOI: 10.1016/j.ejor.2013.04.034
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    References listed on IDEAS

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    Cited by:

    1. Mfon Akpan & Peter Wanke & Jorge Junio Moreira Antunes & Rangan Gupta, 2018. "Unveiling the Endogenous Relationship between Technical Efficiency and Value Creation in Mergers and Acquisitions in Nigeria," Working Papers 201821, University of Pretoria, Department of Economics.
    2. Wanke, Peter & Maredza, Andrew & Gupta, Rangan, 2017. "Merger and acquisitions in South African banking: A network DEA model," Research in International Business and Finance, Elsevier, vol. 41(C), pages 362-376.
    3. Hien Thu Pham & Antonio Peyrache, 2015. "Industry Inefficiency Measures: A Unifying Approximation Proposition," CEPA Working Papers Series WP102015, School of Economics, University of Queensland, Australia.
    4. Peyrache, Antonio, 2015. "Cost constrained industry inefficiency," European Journal of Operational Research, Elsevier, vol. 247(3), pages 996-1002.
    5. Saastamoinen, Antti & Bjørndal, Endre & Bjørndal, Mette, 2017. "Specification of merger gains in the Norwegian electricity distribution industry," Energy Policy, Elsevier, vol. 102(C), pages 96-107.
    6. repec:kap:jproda:v:48:y:2017:i:1:d:10.1007_s11123-017-0501-y is not listed on IDEAS
    7. Zelenyuk, Valentin, 2015. "Aggregation of scale efficiency," European Journal of Operational Research, Elsevier, vol. 240(1), pages 269-277.
    8. Hai-Liu Shi & Ying-Ming Wang & Sheng-Qun Chen & Yi-Xin Lan, 2017. "An approach to two-sided M&A fits based on a cross-efficiency evaluation with contrasting attitudes," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 68(1), pages 41-52, January.
    9. Blancard, Stéphane & Boussemart, Jean-Philippe & Chavas, Jean-Paul & Leleu, Hervé, 2016. "Potential gains from specialization and diversification further to the reorganization of activities," Omega, Elsevier, vol. 63(C), pages 60-68.
    10. Färe, Rolf & Karagiannis, Giannis, 2017. "The denominator rule for share-weighting aggregation," European Journal of Operational Research, Elsevier, vol. 260(3), pages 1175-1180.
    11. Antonio Peyrache, 2014. "Cost Constrained Industry Inefficiency," CEPA Working Papers Series WP042014, School of Economics, University of Queensland, Australia.
    12. Saastamoinen, Antti & Bjørndal, Endre & Bjørndal, Mette, 2016. "Specification of merger gains in the Norwegian electricity distribution industry," Discussion Papers 2016/7, Norwegian School of Economics, Department of Business and Management Science.
    13. Peyrache, Antonio & Zago, Angelo, 2016. "Large courts, small justice!," Omega, Elsevier, vol. 64(C), pages 42-56.
    14. Giannis Karagiannis, 2015. "On structural and average technical efficiency," Journal of Productivity Analysis, Springer, vol. 43(3), pages 259-267, June.

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