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On Cooperation Through Alliances and Mergers

Author

Listed:
  • Manel Antelo

    (Universidade de Santiago de Compostela)

  • David Peón

    (University of A Coruna)

Abstract

This paper examines the profitability of alliances and mergers as strategic substitutes for entrepreneurial firms to obtain a cost-cutting advantage. In a Cournot oligopoly with linear demand, constant marginal costs and a subset of firms choosing whether to ally or merge, the preference of a device or the other depends on the number of firms in the industry, their efficiency degree before the agreement, the number of collaborating firms, and the amount of cost saving achieved by the agreement. In general, given the number of firms in the market, an alliance is preferred when the cost-cutting achieved is large and a merge when it is low. Consumers, on the other hand, are always better with an alliance than with a merger. Finally, when aggregate welfare is considered, we characterize the scenarios where socially inefficient mergers or alliances would be implemented. We also discuss two assumptions of the model that might lead to the result that alliances are preferred the more competitors in the industry—a paradox that contradicts the basic tenets of industrial organization theory.

Suggested Citation

  • Manel Antelo & David Peón, 2019. "On Cooperation Through Alliances and Mergers," Journal of Industry, Competition and Trade, Springer, vol. 19(2), pages 263-279, June.
  • Handle: RePEc:kap:jincot:v:19:y:2019:i:2:d:10.1007_s10842-018-0289-0
    DOI: 10.1007/s10842-018-0289-0
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    References listed on IDEAS

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    Cited by:

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    2. Manel Antelo & David Peón, 2021. "The Size of Strategic Alliances and the Role Played by Managers," Journal of Industry, Competition and Trade, Springer, vol. 21(2), pages 287-313, June.

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    More about this item

    Keywords

    Entrepreneurial firms; Mergers; Alliances; Corporate management;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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