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Endogenous merger formation in asymmetric markets: A reformulation and welfare analysis

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  • Neubecker, Leslie
  • Stadler, Manfred

Abstract

This paper analyzes endogenous merger formation in oligopolistic markets where firms have different unit production costs. We reformulate the merger model, introduced by Barros (1998), by employing the core as cooperative equilibrium concept. We show that, depending on the size asymmetry in the pre-merger market, this alternative solution concept predicts a different post-merger market structure. For intermediate size differences, it is not the most efficient firm that is generally involved in the merger but the least efficient firm. Additionally, we present a welfare analysis which shows that under a wide range of size asymmetries, endogenous merger formation has a welfare improving net effect.

Suggested Citation

  • Neubecker, Leslie & Stadler, Manfred, 2003. "Endogenous merger formation in asymmetric markets: A reformulation and welfare analysis," Tübinger Diskussionsbeiträge 257, University of Tübingen, School of Business and Economics.
    • Handle: RePEc:zbw:tuedps:257
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    References listed on IDEAS

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    1. 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, President and Fellows of Harvard College, vol. 98(2), pages 185-199.
    2. Horn, Henrik & Persson, Lars, 2001. "Endogenous mergers in concentrated markets," International Journal of Industrial Organization, Elsevier, vol. 19(8), pages 1213-1244, September.
    3. Horn, Henrik & Persson, Lars, 2001. "The equilibrium ownership of an international oligopoly," Journal of International Economics, Elsevier, vol. 53(2), pages 307-333, April.
    4. Ramon Faulí‐Oller, 2002. "Mergers between Asymmetric Firms: Profitability and Welfare," Manchester School, University of Manchester, vol. 70(1), pages 77-87, January.
    5. Barros, Pedro Pita, 1998. "Endogenous mergers and size asymmetry of merger participants," Economics Letters, Elsevier, vol. 60(1), pages 113-119, July.
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    Cited by:

    1. 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.

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    More about this item

    Keywords

    Asymmetric endogenous mergers; Coalition formation;

    JEL classification:

    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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