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On merger profitability and the intensity of rivalry

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  • Escrihuela-Villar, Marc

Abstract

This paper considers a general symmetric quantity-setting oligopoly where the "coefficient of cooperation" defined by Cyert and DeGroot (An Analysis of Cooperation and Learning in a Duopoly Context, 1973) is interpreted as the parameter indicating severity of competition. It is obtained that horizontal mergers are more likely to be profitable in a more competitive market structure. Consequently, the results by Salant, Switzer and Reynolds (The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium, 1983) about merger profitability are sensitive to the assumption of pre-merger Cournot competition.

Suggested Citation

  • Escrihuela-Villar, Marc, 2015. "On merger profitability and the intensity of rivalry," Economics Discussion Papers 2015-54, Kiel Institute for the World Economy (IfW Kiel).
    • Handle: RePEc:zbw:ifwedp:201554
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    References listed on IDEAS

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    1. Ziss, Steffen, 2001. "Horizontal mergers and delegation," International Journal of Industrial Organization, Elsevier, vol. 19(3-4), pages 471-492, March.
    2. Farrell, Joseph & Shapiro, Carl, 1990. "Horizontal Mergers: An Equilibrium Analysis," American Economic Review, American Economic Association, vol. 80(1), pages 107-126, March.
    3. Timothy Cason & Tatsuyoshi Saijo & Takehiko Yamato, 2002. "Voluntary Participation and Spite in Public Good Provision Experiments: An International Comparison," Experimental Economics, Springer;Economic Science Association, vol. 5(2), pages 133-153, October.
    4. Perry, Martin K & Porter, Robert H, 1985. "Oligopoly and the Incentive for Horizontal Merger," American Economic Review, American Economic Association, vol. 75(1), pages 219-227, March.
    5. Bittlingmayer, George, 1985. "Did Antitrust Policy Cause the Great Merger Wave?," Journal of Law and Economics, University of Chicago Press, vol. 28(1), pages 77-118, April.
    6. Escrihuela-Villar, Marc, 2008. "Partial coordination and mergers among quantity-setting firms," International Journal of Industrial Organization, Elsevier, vol. 26(3), pages 803-810, May.
    7. Fernando Vega-Redondo, 1997. "The Evolution of Walrasian Behavior," Econometrica, Econometric Society, vol. 65(2), pages 375-384, March.
    8. Cyert, Richard M & DeGroot, Morris H, 1973. "An Analysis of Cooperation and Learning in a Duopoly Context," American Economic Review, American Economic Association, vol. 63(1), pages 24-37, March.
    9. d'Aspremont, Claude & Dos Santos Ferreira, Rodolphe, 2009. "Price-quantity competition with varying toughness," Games and Economic Behavior, Elsevier, vol. 65(1), pages 62-82, January.
    10. George Symeonidis, 2008. "Downstream Competition, Bargaining, and Welfare," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 17(1), pages 247-270, March.
    11. Simon J. Evenett & Margaret C. Levenstein & Valerie Y. Suslow, 2001. "International Cartel Enforcement: Lessons from the 1990s," The World Economy, Wiley Blackwell, vol. 24(9), pages 1221-1245, September.
    12. Matsumura, Toshihiro & Matsushima, Noriaki & Cato, Susumu, 2013. "Competitiveness and R&D competition revisited," Economic Modelling, Elsevier, vol. 31(C), pages 541-547.
    13. Xavier Vives, 2001. "Oligopoly Pricing: Old Ideas and New Tools," MIT Press Books, The MIT Press, edition 1, volume 1, number 026272040x, December.
    14. Escrihuela-Villar Marc, 2015. "A Note on the Equivalence of the Conjectural Variations Solution and the Coefficient of Cooperation," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 15(2), pages 473-480, July.
    15. repec:bla:buecrs:v:64:y:2012:i::p:s22-s31 is not listed on IDEAS
    16. Odd Rune Straume, 2006. "Managerial Delegation and Merger Incentives with Asymmetric Costs," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 162(3), pages 450-469, September.
    17. Rodrigues, Vasco, 2001. "Endogenous mergers and market structure," International Journal of Industrial Organization, Elsevier, vol. 19(8), pages 1245-1261, September.
    18. George Symeonidis, 2002. "The Effects of Competition: Cartel Policy and the Evolution of Strategy and Structure in British Industry," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262194686, December.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Domenico Buccella & Luciano Fanti, 2022. "Downstream competition and profits under different input price bargaining structures," Journal of Economics, Springer, vol. 136(3), pages 251-268, August.
    2. Buccella Domenico & Fanti Luciano, 2019. "Profits Under Centralized Negotiations: The Efficient Bargaining Case," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 19(2), pages 1-8, June.
    3. Domenico Buccella & Leonard F. S. Wang, 2021. "Union negotiations, product market cooperation, and profits," Metroeconomica, Wiley Blackwell, vol. 72(1), pages 82-100, February.
    4. Escrihuela-Villar Marc & Ferrarese Walter, 2019. "Horizontal Mergers in a Dynamic Cournot Market: Solving the Free Riding Issue Without Efficiency Gains," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 19(4), pages 1-14, October.

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    More about this item

    Keywords

    oligopoly; competitive intensity; horizontal mergers;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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