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Endogenous Mergers in Concentrated Markets

  • Horn, Henrik
  • Persson, Lars

The merger literature almost exclusively considers mergers between exogenously specified firms. This paper proposes an approach to predict the pattern of mergers in situations where different mergers are feasible. It generalizes the traditional industrial organization approach, employing ideas on coalition-formation from cooperative game theory. The model suggests that in concentrated markets, equilibrium mergers are conducive to market structures with large industry profits, thus pointing to an inherent conflict between private and socially-correct merger incentives. While applying the model, light is also thrown on formation of research joint ventures, mergers between quantity-constrained firms, and tariff-jumping foreign direct investment.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1544.

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Date of creation: Dec 1996
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Handle: RePEc:cpr:ceprdp:1544
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  1. Ray, Debraj & Vohra, Rajiv, 1999. "A Theory of Endogenous Coalition Structures," Games and Economic Behavior, Elsevier, vol. 26(2), pages 286-336, January.
  2. Nilssen, Tore & Sorgard, Lars, 1998. "Sequential horizontal mergers," European Economic Review, Elsevier, vol. 42(9), pages 1683-1702, November.
  3. Fridolfsson, Sven-Olof & Stennek, Johan, 1999. "Why Mergers Reduce Profits, and Raise Share Prices," Working Paper Series 511, Research Institute of Industrial Economics, revised 03 Dec 2001.
  4. Gaudet, Gerard & Salant, Stephen W., 1992. "Mergers of producers of perfect complements competing in price," Economics Letters, Elsevier, vol. 39(3), pages 359-364, July.
  5. Bloch, Francis, 1996. "Sequential Formation of Coalitions in Games with Externalities and Fixed Payoff Division," Games and Economic Behavior, Elsevier, vol. 14(1), pages 90-123, May.
  6. Greenberg, Joseph, 1994. "Coalition structures," Handbook of Game Theory with Economic Applications, in: R.J. Aumann & S. Hart (ed.), Handbook of Game Theory with Economic Applications, edition 1, volume 2, chapter 37, pages 1305-1337 Elsevier.
  7. Morton I. Kamien & Israel Zang, 1988. "The Limits of Monopolization Through Acquisition," Discussion Papers 802, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  8. Persson, Lars & Horn, Henrik, 1998. "Endogenous Mergers in Concentrated Markets," Working Paper Series 513, Research Institute of Industrial Economics.
  9. Joseph Farrell & Carl Shapiro, 1990. "Asset Ownership and Market Structure in Oligopoly," RAND Journal of Economics, The RAND Corporation, vol. 21(2), pages 275-292, Summer.
  10. Hart, Sergiu & Kurz, Mordecai, 1983. "Endogenous Formation of Coalitions," Econometrica, Econometric Society, vol. 51(4), pages 1047-64, July.
  11. Kamien, Morton I. & Zang, Israel, 1991. "Competitively cost advantageous mergers and monopolization," Games and Economic Behavior, Elsevier, vol. 3(3), pages 323-338, August.
  12. Yi, Sang-Seung, 1997. "Stable Coalition Structures with Externalities," Games and Economic Behavior, Elsevier, vol. 20(2), pages 201-237, August.
  13. Barros, Pedro Pita, 1998. "Endogenous mergers and size asymmetry of merger participants," Economics Letters, Elsevier, vol. 60(1), pages 113-119, July.
  14. 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.
  15. Salant, Stephen W & Switzer, Sheldon & Reynolds, Robert J, 1983. "Losses from Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 98(2), pages 185-99, May.
  16. 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.
  17. Persson, Lars, 1998. "The Auctioning of a Failing Firm," Working Paper Series 514, Research Institute of Industrial Economics.
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