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Can a small fish become a big fish? Modeling leader-generating mergers in a Stackelberg market

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  • Qiu, Hong
  • Zhu, Nan
  • Peng, Qiyuan

Abstract

In this note we model two merger cases where the strategic position of a follower firm changes after a merger: 1) one follower and one leader merge into one new leader; and 2) two followers merge into one new leader. Our model indicates that these two leader-generating bilateral mergers are always profitable in the post-merger market. A free-riding issue exists in the first case, but not in the second case. The impacts on consumer surplus also vary with these two cases of mergers.

Suggested Citation

  • Qiu, Hong & Zhu, Nan & Peng, Qiyuan, 2021. "Can a small fish become a big fish? Modeling leader-generating mergers in a Stackelberg market," Finance Research Letters, Elsevier, vol. 38(C).
    • Handle: RePEc:eee:finlet:v:38:y:2021:i:c:s1544612319313224
    DOI: 10.1016/j.frl.2020.101684
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    More about this item

    Keywords

    Stackelberg market; Mergers; Linear costs;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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