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Horizontal Mergers with Scale Economies

  • D. Dragone
  • L. Lambertini
  • A. Mantovani

We examine the profitability and social efficiency of horizontal mergers in a Cournot oligopoly with decreasing average costs. Assuming the merger allows for a reduction in the total amount of fixed costs, we identify the conditions under which the merger is, respectively, profitable and socially desirable. There exists an admissible parameter range wherein the merger is socially convenient but not profitable. In such a case, the policy maker may induce firms to merge through subsidies financed via a lump sum tax.

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Paper provided by Dipartimento Scienze Economiche, Universita' di Bologna in its series Working Papers with number 571.

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Date of creation: 2006
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Handle: RePEc:bol:bodewp:571
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  1. Farrell, Joseph & Shapiro, Carl, 2000. "Scale Economies and Synergies in Horizontal Merger Analysis," Competition Policy Center, Working Paper Series qt8v1500b8, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
  2. Farrell, Joseph & Shapiro, Carl, 1988. "Horizontal Mergers: An Equilibrium Analysis," Department of Economics, Working Paper Series qt0tp305nx, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  3. 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.
  4. David Hennessy, 2000. "Cournot Oligopoly Conditions under which Any Horizontal Merger Is Profitable," Review of Industrial Organization, Springer, vol. 17(3), pages 277-284, November.
  5. Raymond Deneckere & Carl Davidson, 1985. "Incentives to Form Coalitions with Bertrand Competition," RAND Journal of Economics, The RAND Corporation, vol. 16(4), pages 473-486, Winter.
  6. 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.
  7. McAfee, R Preston & Williams, Michael A, 1992. "Horizontal Mergers and Antitrust Policy," Journal of Industrial Economics, Wiley Blackwell, vol. 40(2), pages 181-87, June.
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