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The merger paradox in a mixed oligopoly

  • Artz, Benjamin
  • Heywood, John S.
  • McGinty, Matthew

This paper examines the set of surplus maximizing mergers in a model of mixed oligopoly. The presence of a welfare maximizing public firm reduces the set of mergers for which two private firms can profitably merge. When a public firm and private firm merge, the changes in welfare and profit depend on the resulting extent of private ownership in the newly merged firm. When the government sets that share to maximize post merger welfare as assumed in the privatization literature, the merger paradox will often remain and the merger will not take place. Yet, we show there always exists scope for mergers that increase profit and increase (if not maximize) welfare. Interestingly, these mergers often include complete privatization.

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Article provided by Elsevier in its journal Research in Economics.

Volume (Year): 63 (2009)
Issue (Month): 1 (March)
Pages: 1-10

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Handle: RePEc:eee:reecon:v:63:y:2009:i:1:p:1-10
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  6. Garzón San Felipe, María Begoña & Bárcena Ruiz, Juan Carlos, 2001. "International Trade and Strategic Privatization," BILTOKI 2001-07, Universidad del País Vasco - Departamento de Economía Aplicada III (Econometría y Estadística).
  7. Toshihiro Matsumura & Osamu Kanda, 2005. "Mixed Oligopoly at Free Entry Markets," Journal of Economics, Springer, vol. 84(1), pages 27-48, 02.
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  17. Barros, Fatima, 1995. "Incentive schemes as strategic variables: An application to a mixed duopoly," International Journal of Industrial Organization, Elsevier, vol. 13(3), pages 373-386, September.
  18. Ali Dadpay & John S. Heywood, 2006. "Mixed Oligopoly In A Single International Market ," Australian Economic Papers, Wiley Blackwell, vol. 45(4), pages 269-280, December.
  19. Perry, Martin K & Porter, Robert H, 1985. "Oligopoly and the Incentive for Horizontal Merger," American Economic Review, American Economic Association, vol. 75(1), pages 219-27, March.
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