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Horizontal Mergers and Acquisitions with Endogenous Efficiency Gains

  • Christos Cabolis


    (ALBA Graduate Business School)

  • Constantine Manasakis


    (Department of Economics, University of Crete, Greece)

  • Emmanuel Petrakis


    (Department of Economics, University of Crete, Greece)

We examine how the strategic long-run decisions, such as cost-reducing R&D investments, prior to the decision for integration; create endogenous efficiency gains that make a horizontal integration profitable. The "merger" and the "acquisition" are distinguished as different modes of horizontal integration, with respect to both incentives and equilibrium outcomes. We show that firms' incentives for integration depend on the magnitude of the cost efficiencies that R&D investments give rise to and the rule of sharing of the integrated entity's profits across participants. The welfare effects of horizontal integrations are also discussed.

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Paper provided by University of Crete, Department of Economics in its series Working Papers with number 0817.

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Date of creation: 18 Jun 2008
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Handle: RePEc:crt:wpaper:0817
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  1. Persson, Lars & Horn, Henrik, 1998. "Endogenous Mergers in Concentrated Markets," Working Paper Series 513, Research Institute of Industrial Economics.
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  7. 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.
  8. Kjell Erik Lommerud & Odd Rune Straume & Lars Sørgard, 2006. "National versus international mergers in unionized oligopoly," RAND Journal of Economics, RAND Corporation, vol. 37(1), pages 212-233, 03.
  9. Katsoulacos, Yannis & Ulph, David, 1998. "Endogenous Spillovers and the Performance of Research Joint Ventures," Journal of Industrial Economics, Wiley Blackwell, vol. 46(3), pages 333-57, September.
  10. Morton I. Kamien & Israel Zang, 1987. "The Limits of Monopolization Through Acquisition," Discussion Papers 754, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  11. Lommerud, Kjell Erik & Sorgard, Lars, 1997. "Merger and product range rivalry," International Journal of Industrial Organization, Elsevier, vol. 16(1), pages 21-42, November.
  12. Motta, Massimo & Vasconcelos, Helder, 2004. "Efficiency Gains and Myopic Antitrust Authority in a Dynamic Merger Game," CEPR Discussion Papers 4175, C.E.P.R. Discussion Papers.
  13. d'Aspremont, Claude & Jacquemin, Alexis, 1990. "Cooperative and Noncooperative R&D in Duopoly with Spillovers: Erratum," American Economic Review, American Economic Association, vol. 80(3), pages 641-42, June.
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  15. Klaus Gugler & Dennis C. Mueller & B. Burcin Yurtoglu & Christine Zulehner, 2001. "The Effects of Mergers: An International Comparison," CIG Working Papers FS IV 01-21, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  16. Banal-Estanol, Albert & Macho-Stadler, Ines & Seldeslachts, Jo, 2008. "Endogenous mergers and endogenous efficiency gains: The efficiency defence revisited," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 69-91, January.
  17. 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.
  18. Gonzalez-Maestre, Miguel & Lopez-Cunat, Javier, 2001. "Delegation and mergers in oligopoly," International Journal of Industrial Organization, Elsevier, vol. 19(8), pages 1263-1279, September.
  19. Marcel Canoy & Yohanes E. Riyanto & Patrick Van Cayseele, 2000. "Corporate takeovers, bargaining and managers' incentives to invest," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 21(1), pages 1-18.
  20. Stenbacka, L. Rune, 1991. "Mergers and investments in cost reduction with private information," International Journal of Industrial Organization, Elsevier, vol. 9(3), pages 397-405, September.
  21. Lommerud, Kjell Erik & Straume, Odd Rune & Sorgard, Lars, 2005. "Downstream merger with upstream market power," European Economic Review, Elsevier, vol. 49(3), pages 717-743, April.
  22. Barros, Pedro Pita, 1998. "Endogenous mergers and size asymmetry of merger participants," Economics Letters, Elsevier, vol. 60(1), pages 113-119, July.
  23. Mara Faccio & Ronald W. Masulis, 2005. "The Choice of Payment Method in European Mergers and Acquisitions," Journal of Finance, American Finance Association, vol. 60(3), pages 1345-1388, 06.
  24. 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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