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Merger Waves Through Market Leadership

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  • Walter Ferrarese

    (Universitat de les Illes Balears, Edificio Gaspar Melchor de Jovellanos)

Abstract

I present a merger model where a merged entity is assumed to acquire the market leadership from a linear, symmetric, simultaneous, homogeneous good, quantity-setting oligopoly and where efficiency gains are ruled out. If firms cannot merge to monopoly, mergers occur in waves, and for each number of pre-merger firms, I endogenize: (i) the number of mergers in a wave; (ii) the number of firms involved in each merger; and (iii) the order in which the mergers take place. If monopolization is allowed, in the majority of cases, all firms prefer to merge into a single entity. This suggests the strategic nature of merger waves as a response to the prohibition of monopolization. Finally, in sharp contrast with the existing results on horizontal mergers under simultaneous quantity competition without efficiency gains, and in line with empirical findings, profitability is ensured even if mergers involve a small number of firms.

Suggested Citation

  • Walter Ferrarese, 2021. "Merger Waves Through Market Leadership," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 7(3), pages 371-385, November.
    • Handle: RePEc:spr:italej:v:7:y:2021:i:3:d:10.1007_s40797-019-00117-9
    DOI: 10.1007/s40797-019-00117-9
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Horizontal mergers; Leadership acquisition; Merger waves;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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