Efficient horizontal mergers: The effects of internal capital reallocation and organizational form
This paper analyzes the resource reallocation problem in merged firms when the merged firms have a choice to retain competition between the merging partners. We consider horizontal mergers between firms that differ only in their initial capital levels. When initial capital levels are unequal, evenly distributing total capital between merging partners improves the overall cost efficiency of the merged firm. In this case, the merger often results in the multidivisional structure (the M-form) rather than the conventional structure of completely integrating merging partners because, under the M-form, the profits from aggressive production expansion backed by efficiency-improving capital reallocation is higher than the profits from output contraction and rationalization under complete integration. Such a merger enhances market competition. On the contrary, mergers between identical firms always induce complete integration.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ziss, Steffen, 2001. "Horizontal mergers and delegation," International Journal of Industrial Organization, Elsevier, vol. 19(3-4), pages 471-492, March.
- Lang, Larry H P & Stulz, Rene M, 1994.
"Tobin's q, Corporate Diversification, and Firm Performance,"
Journal of Political Economy,
University of Chicago Press, vol. 102(6), pages 1248-1280, December.
- Larry H.P. Lang & Rene M. Stulz, 1993. "Tobin's Q, Corporate Diversification and Firm Performance," NBER Working Papers 4376, National Bureau of Economic Research, Inc.
- Tan, Guofu & Yuan, Lasheng, 2003. "Strategic incentives of divestitures of competing conglomerates," International Journal of Industrial Organization, Elsevier, vol. 21(5), pages 673-697, May.
- W. Salant, Stephen & Shaffer, Greg, 1998. "Optimal asymmetric strategies in research joint ventures," International Journal of Industrial Organization, Elsevier, vol. 16(2), pages 195-208, March.
- Salant, S.W. & Shaffer, G., 1997. "Optimal Asymmetric Strategies in Research Joint Ventures," Papers 97-06, Michigan - Center for Research on Economic & Social Theory.
- Fauli-Oller, Ramon & Giralt, Magdalena, 1995. "Competition and Cooperation within a Multidivisional Firm," Journal of Industrial Economics, Wiley Blackwell, vol. 43(1), pages 77-99, March.
- Gonzalez-Maestre, Miguel & Lopez-Cunat, Javier, 2001. "Delegation and mergers in oligopoly," International Journal of Industrial Organization, Elsevier, vol. 19(8), pages 1263-1279, September.
- Javier M. López Cuñat & Miguel González-Maestre, 1999. "- Delegation And Mergers In Oligopoly," Working Papers. Serie AD 1999-03, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
- Stephen W. Salant & Sheldon Switzer & Robert J. Reynolds, 1983. "Losses From Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, Oxford University Press, vol. 98(2), pages 185-199.
- Greg Shaffer & Stephen W. Salant, 1999. "Unequal Treatment of Identical Agents in Cournot Equilibrium," American Economic Review, American Economic Association, vol. 89(3), pages 585-604, June.
- Baye, Michael R & Crocker, Keith J & Ju, Jiandong, 1996. "Divisionalization, Franchising, and Divestiture Incentives in Oligopoly," American Economic Review, American Economic Association, vol. 86(1), pages 223-236, March.
- Theodore C. Bergstrom & Hal R. Varian, 1985. "When Are Nash Equilibria Independent of the Distribution of Agents' Characteristics?," Review of Economic Studies, Oxford University Press, vol. 52(4), pages 715-718.
- Mihkel M. Tombak, 2002. "Mergers to Monopoly," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 11(3), pages 513-546, 09.
- Ziss, Steffen, 2007. "Hierarchies, intra-firm competition and mergers," International Journal of Industrial Organization, Elsevier, vol. 25(2), pages 237-260, April.
- Perry, Martin K & Porter, Robert H, 1985. "Oligopoly and the Incentive for Horizontal Merger," American Economic Review, American Economic Association, vol. 75(1), pages 219-227, March.
- Joseph Farrell & Carl Shapiro, 1990. "Asset Ownership and Market Structure in Oligopoly," RAND Journal of Economics, The RAND Corporation, vol. 21(2), pages 275-292, Summer.
- Bergstrom, Theodore C. & Varian, Hal R., 1985. "Two remarks on Cournot equilibria," Economics Letters, Elsevier, vol. 19(1), pages 5-8.
- McAfee, R Preston & Williams, Michael A, 1992. "Horizontal Mergers and Antitrust Policy," Journal of Industrial Economics, Wiley Blackwell, vol. 40(2), pages 181-187, June.
- Morton I. Kamien & Israel Zang, 1990. "The Limits of Monopolization Through Acquisition," The Quarterly Journal of Economics, Oxford University Press, vol. 105(2), pages 465-499.
- Anthony Creane & Carl Davidson, 2004. "Multidivisional firms, internal competition, and the merger paradox," Canadian Journal of Economics, Canadian Economics Association, vol. 37(4), pages 951-977, November. Full references (including those not matched with items on IDEAS)