Dynamics of mergers, bifurcation and chaos: A new framework
This paper is motivated by a gap in the existing literature on mergers since no attempt has been successfully made to consider endogenous multiple mergers that trigger reciprocal mergers, which in turn fuel further mergers and the process continues ad infinitum. The precise contribution of this paper is to model endogenous mergers such that groups of firms simultaneously decide whether to merge, or not, when their rivals decide to merge. We call this type of mergers endogenously-driven-reciprocal (EDR) mergers. We develop a framework to examine endogenously-driven-reciprocal mergers to establish that fluctuations in merger activities can be explained in a purely endogenous manner, without resorting to any ad hoc stochastic specifications. Our principal finding therefore is that complicated random looking sequences of mergers and merger waves might even prevail in deterministic models, under a reasonable condition. We then extend the model to include U-shaped cost functions and non-pecuniary goals of managers to establish the existence of multiple merger equilibria, which can cause a serious indeterminacy, historical lock-in and path dependency in the context of endogenously-driven-reciprocal mergers. We further show how multiplicity of merger equilibrium and bifurcations of these equilibria can lend fragility to the industrial system.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 403 (2014)
Issue (Month): C ()
|Contact details of provider:|| Web page: http://www.journals.elsevier.com/physica-a-statistical-mechpplications/|
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.:
- AMIR, Rabah & DIAMANTOUDI, Effrosyni & XUE, Licun, 2008.
"Merger Performance under Uncertain Efficiency Gains,"
Cahiers de recherche
09-2008, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
- Amir, Rabah & Diamantoudi, Effrosyni & Xue, Licun, 2009. "Merger performance under uncertain efficiency gains," International Journal of Industrial Organization, Elsevier, vol. 27(2), pages 264-273, March.
- Licun Xue & Rabah Amir & Effrosyni Diamantoudi, 2004. "Merger Performance under Uncertain Efficiency Gains," Working Papers 2004.79, Fondazione Eni Enrico Mattei.
- AMIR, Rabah & DIAMANTOUDI, Effrosyni & XUE, Licun, 2003. "Merger performance under uncertain efficiency gains," CORE Discussion Papers 2003038, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Rabah Amir & Effrosyni Diamantoudi & Licun Xue, 2006. "Merger Performance Under Uncertain Efficiency Gains," Departmental Working Papers 2005-07, McGill University, Department of Economics.
- Horn, Henrik & Persson, Lars, 2001.
"Endogenous mergers in concentrated markets,"
International Journal of Industrial Organization,
Elsevier, vol. 19(8), pages 1213-1244, September.
- Gugler, Klaus & Mueller, Dennis C. & Yurtoglu, B. Burcin & Zulehner, Christine, 2003.
"The effects of mergers: an international comparison,"
International Journal of Industrial Organization,
Elsevier, vol. 21(5), pages 625-653, May.
- Klaus Gugler & Dennis C. Mueller & B. Burcin Yurtoglu & Christine Zulehner, 2001. "The Effects of Mergers: An International Comparison," CIG Working Papers FS IV 01-21, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
- Volker Nocke & Michael D. Whinston, 2010.
"Dynamic Merger Review,"
Journal of Political Economy,
University of Chicago Press, vol. 118(6), pages 1201-1251.
- Besanko, David & Spulber, Daniel F, 1993. "Contested Mergers and Equilibrium Antitrust Policy," Journal of Law, Economics and Organization, Oxford University Press, vol. 9(1), pages 1-29, April.
- Che, Yeon-Koo & Dessein, Wouter & Kartik, Navin, 2010.
"Pandering to Persuade,"
CEPR Discussion Papers
7970, C.E.P.R. Discussion Papers.
- Benhabib, Jess & Day, Richard H., 1980. "Erratic accumulation," Economics Letters, Elsevier, vol. 6(2), pages 113-117.
- Gaudet, G. & Salant, S., 1989.
"Towards A Theory Of Horizontal Mergers,"
89-24, Michigan - Center for Research on Economic & Social Theory.
- Damien J. Neven & Lars-Hendrik Röller, 2000.
"Consumer Surplus vs. Welfare Standard in a Political Economy Model of Merger Control,"
CIG Working Papers
FS IV 00-15, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
- Neven, Damien J. & Roller, Lars-Hendrik, 2005. "Consumer surplus vs. welfare standard in a political economy model of merger control," International Journal of Industrial Organization, Elsevier, vol. 23(9-10), pages 829-848, December.
- Neven, Damien J & Röller, Lars-Hendrik, 2000. "Consumer Surplus vs. Welfare Standard in a Political Economy Model of Merger Control," CEPR Discussion Papers 2620, C.E.P.R. Discussion Papers.
- Damien J. NEVEN & Lars-Hendrik RÖLLER, 2000. "Consumer Surplus vs. Welfare Standard in a Political Economy Model of Merger Control," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 00.24, Université de Lausanne, Faculté des HEC, DEEP.
- William F. Shughart II & Robert D. Tollison, 1984. "The Random Character of Merger Activity," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 500-509, Winter.
- Nilssen, T. & Sorgard, L., 1995.
"Sequential Horizontal Mergers,"
30/1995, Oslo University, Department of Economics.
- Paul Krugman, 1991. "History versus Expectations," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 651-667.
- Marshall, Alfred, 1890.
"The Principles of Economics,"
History of Economic Thought Books,
McMaster University Archive for the History of Economic Thought, number marshall1890.
- Mark Armstrong & John Vickers, 2010.
"A Model of Delegated Project Choice,"
Econometric Society, vol. 78(1), pages 213-244, 01.
- Straume, Odd Rune, 2003. "International mergers and trade liberalisation: implications for unionised labour," International Journal of Industrial Organization, Elsevier, vol. 21(5), pages 717-735, May.
- William A. Brock, 1993.
"Pathways to randomness in the economy: Emergent nonlinearity and chaos in economics and finance,"
El Colegio de México, Centro de Estudios Económicos, vol. 8(1), pages 3-55.
- W. A. Brock, 1993. "Pathways to Randomness in the Economy: Emergent Nonlinearity and Chaos in Economics and Finance," Working Papers 93-02-006, Santa Fe Institute.
- Vives, Xavier, 1990.
"Nash equilibrium with strategic complementarities,"
Journal of Mathematical Economics,
Elsevier, vol. 19(3), pages 305-321.
- Dana, Rose-Anne & Montrucchio, Luigi, 1986. "Dynamic complexity in duopoly games," Journal of Economic Theory, Elsevier, vol. 40(1), pages 40-56, October.
- Melicher, Ronald W & Ledolter, Johannes & D'Antonio, Louis J, 1983. "A Time Series Analysis of Aggregate Merger Activity," The Review of Economics and Statistics, MIT Press, vol. 65(3), pages 423-430, August.
- J. Barkley Rosser, 1999. "On the Complexities of Complex Economic Dynamics," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 169-192, Fall.
- Rand, David, 1978. "Exotic phenomena in games and duopoly models," Journal of Mathematical Economics, Elsevier, vol. 5(2), pages 173-184, September.
- Clarke, Roger & Ioannidis, Christos, 1996. "On the relationship between aggregate merger activity and the stock market: some further empirical evidence," Economics Letters, Elsevier, vol. 53(3), pages 349-356, December.
- Mattias Ganslandt & Lars Persson & Helder Vasconcelos, 2012. "Endogenous Mergers and Collusion in Asymmetric Market Structures," Economica, London School of Economics and Political Science, vol. 79(316), pages 766-791, October.
- Banal-Estanol, Albert & Macho-Stadler, Ines & Seldeslachts, Jo, 2008. "Endogenous mergers and endogenous efficiency gains: The efficiency defence revisited," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 69-91, January.
- Yagil, Joseph, 1996. "Mergers and macro-economic factors," Review of Financial Economics, Elsevier, vol. 5(2), pages 181-190.
- Raphael Thomadsen & Ki-Eun Rhee, 2007. "Costly Collusion in Differentiated Industries," Marketing Science, INFORMS, vol. 26(5), pages 660-665, 09-10.
- Larry D. Qiu & Wen Zhou, 2007. "Merger waves: a model of endogenous mergers," RAND Journal of Economics, RAND Corporation, vol. 38(1), pages 214-226, 03.
When requesting a correction, please mention this item's handle: RePEc:eee:phsmap:v:403:y:2014:i:c:p:293-307. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.