Information-Sharing Implications of Horizontal Mergers
We analyze the effects of uncertainty and private information on horizontal mergers. Firms face uncertain demands or costs and receive private signals. They may decide to merge sharing their private information. If the uncertainty parameters are independent and the signals are perfect, uncertainty generates an informational advantage only to the merging firms, increasing merger incentives and decreasing free-riding effects. Thus, mergers become more profitable and stable. These results generalize to the case of correlated parameters if the correlation is not very severe, and for perfect correlation if the firms receive noisy signals. From the normative point of view, mergers are socially less harmful compared to deterministic markets and may even be welfare enhancing. If the signals are, instead, publicly observed, uncertainty does not necessarily give more incentives to merge, and mergers are not always less socially harmful.
|Date of creation:||28 Oct 2002|
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- Xavier Vives, 2002. "Private Information, Strategic Behavior, and Efficiency in Cournot Markets," RAND Journal of Economics, The RAND Corporation, vol. 33(3), pages 361-376, Autumn.
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"Efficiency Gains from Mergers,"
Working Paper Series
543, Research Institute of Industrial Economics.
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- Perry, Martin K & Porter, Robert H, 1985. "Oligopoly and the Incentive for Horizontal Merger," American Economic Review, American Economic Association, vol. 75(1), pages 219-27, March.
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- Stephen W. Salant & Sheldon Switzer & Robert J. Reynolds, 1983. "Losses From Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, Oxford University Press, vol. 98(2), pages 185-199.
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