Cournot Oligopoly Conditions under which Any Horizontal Merger Is Profitable
Findings in economic theory suggest that horizontal mergers involving firms with aggregate market share less than 50% are unlikely to be motivated by the consequent reduction in competitivity. The results arise because, absent cost efficiencies, quantity-setting firms in small mergers are impoverished by the merger. We demonstrate that this conclusion is a consequence of the strong restrictions imposed on the demand function, and we identify a well-behaved demand function such that any set of merging firms benefits from the reduction in competition even when there are no cost efficiencies.
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- Farrell, Joseph & Shapiro, Carl, 1990.
"Horizontal Mergers: An Equilibrium Analysis,"
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American Economic Association, vol. 80(1), pages 107-26, March.
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