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Profitable horizontal mergers without cost advantages: The role of internal organization, information, and market structure

  • Huck, Steffen
  • Konrad, Kai A.
  • Müller, Wieland

Merged firms are typically rather complex organizations. Accordingly, me rger has a more profound effect on the structure of a market than simply reducing the number of competitors. We show that this may render horizontal mergers profitable and welfare – improving even if costs are linear. The driving force behind these results, which help to reconcile theory with various empirical findings, is the assumption that information about output decisions flows more freely within a merged firm.

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Paper provided by Social Science Research Center Berlin (WZB) in its series Discussion Papers, various Research Units with number FS IV 01-05.

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Date of creation: 2001
Date of revision:
Handle: RePEc:zbw:wzbdiv:fsiv0105
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  1. 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.
  2. 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.
  3. 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.
  4. Ajeyo Banerjee & E. Woodrow Eckard, 1998. "Are Mega-Mergers Anticompetitive? Evidence from the First Great Merger Wave," RAND Journal of Economics, The RAND Corporation, vol. 29(4), pages 803-827, Winter.
  5. Hamilton, Jonathan H. & Slutsky, Steven M., 1990. "Endogenous timing in duopoly games: Stackelberg or cournot equilibria," Games and Economic Behavior, Elsevier, vol. 2(1), pages 29-46, March.
  6. Joseph Farrell and Carl Shapiro., 1988. "Horizontal Mergers: An Equilibrium Analysis," Economics Working Papers 8880, University of California at Berkeley.
  7. Anthony Creane & Carl Davidson, 2004. "Multidivisional firms, internal competition, and the merger paradox," Canadian Journal of Economics, Canadian Economics Association, vol. 37(4), pages 951-977, November.
  8. Baye, Michael R & Crocker, Keith J & Ju, Jiandong, 1996. "Divisionalization, Franchising, and Divestiture Incentives in Oligopoly," American Economic Review, American Economic Association, vol. 86(1), pages 223-36, March.
  9. Luis M. B. Cabral, 2001. "Horizontal Mergers With Free-Entry: Why Cost Efficiencies May Be a Weak Defense and Asset Sales a Poor Remedy," Working Papers 01-05, New York University, Leonard N. Stern School of Business, Department of Economics.
  10. Martin Pesendorfer, 1998. "Horizontal Mergers in the Paper Industry," NBER Working Papers 6751, National Bureau of Economic Research, Inc.
  11. R. Glenn Hubbard & Darius Palia, 1999. "A Reexamination of the Conglomerate Merger Wave in the 1960s: An Internal Capital Markets View," Journal of Finance, American Finance Association, vol. 54(3), pages 1131-1152, 06.
  12. MacDonald, James M. & Ollinger, Michael & Nelson, Kenneth E. & Handy, Charles R., 2000. "Consolidation In U.S. Meatpacking," Agricultural Economics Reports 34021, United States Department of Agriculture, Economic Research Service.
  13. Matsumura, Toshihiro, 1999. "Quantity-setting oligopoly with endogenous sequencing," International Journal of Industrial Organization, Elsevier, vol. 17(2), pages 289-296, February.
  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. Barrie R. Nault & Rajeev K. Tyagi, 2001. "Erratum: Implementable Mechanisms to Coordinate Horizontal Alliances," Management Science, INFORMS, vol. 47(10), pages 1440-1440, October.
  16. Ellingsen, Tore, 1994. "On Flexibility in Oligopoly," SSE/EFI Working Paper Series in Economics and Finance 21, Stockholm School of Economics.
  17. Barrie R. Nault & Rajeev K. Tyagi, 2001. "Implementable Mechanisms to Coordinate Horizontal Alliances," Management Science, INFORMS, vol. 47(6), pages 787-799, June.
  18. Gaudet, Gerard & Salant, Stephen W, 1991. "Increasing the Profits of a Subset of Firms in Oligopoly Models with Strategic Substitutes," American Economic Review, American Economic Association, vol. 81(3), pages 658-65, June.
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