Merger wave in a small world: Two views
I attempt a more balanced assessment of mergers in terms of systemic risk versus other effects. First, using the simplest network model, I illustrate how mergers can increase systemic risk by reducing the degree of separation among firms. Then, recasting the firms in a simple economic model that features consumers explicitly, I show how a merger wave – a contagious urge to merge – can occur and what benefit it may bring to consumers. Together, these two models suggest that there is a tradeoff to consider: While a merger wave may result in higher systemic risk, it may also bring about higher consumer welfare.
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Volume (Year): 43 (2013)
Issue (Month): C ()
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- F. M. Scherer, 2010. "A Perplexed Economist Confronts 'too Big to Fail'," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 7(2), pages 267-284, June.
- Scherer, Frederic Michael, 2010. "A Perplexed Economist Confronts 'Too Big to Fail'," Scholarly Articles 4454151, Harvard Kennedy School of Government.
- Gai, Prasanna & Haldane, Andrew & Kapadia, Sujit, 2011. "Complexity, concentration and contagion," Journal of Monetary Economics, Elsevier, vol. 58(5), pages 453-470. Full references (including those not matched with items on IDEAS)
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