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Merger wave in a small world: Two views

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  • Lee, Li Way

Abstract

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.

Suggested Citation

  • Lee, Li Way, 2013. "Merger wave in a small world: Two views," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 43(C), pages 68-71.
    • Handle: RePEc:eee:soceco:v:43:y:2013:i:c:p:68-71
    DOI: 10.1016/j.socec.2013.01.009
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    References listed on IDEAS

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    Cited by:

    1. Bayiley, Yitbarek Takele & Redae, Haben Mehari, 2022. "Domestic Bank Merger and Acquisition in Ethiopia: a prudent strategy for efficiency and synergy gain," Ethiopian Journal of Economics, Ethiopian Economics Association, vol. 26(1), April.
    2. Hou, Rui & Yang, Jianmei & Yao, Canzhong & McKelvey, Bill, 2015. "How does competition structure affect industry merger waves? A network analysis perspective," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 429(C), pages 140-156.

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    More about this item

    Keywords

    Merger wave; Small world; Financial network; Merger contagion; Systemic risk; Product differentiation;
    All these keywords.

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • G01 - Financial Economics - - General - - - Financial Crises
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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