Intra-firm Coordination and Horizontal Merger

Michael Higl and Peter Welzel ()

No 269, Discussion Paper Series from Universitaet Augsburg, Institute for Economics

Abstract: We look at an industry of Cournot oligopolists each of which consists of production facilities which enjoy some degree of freedom in deciding their output quantities and that way influence the total output of a firm. This structure can be motivated e.g. the existence of profit centers or by the specifics of a cooperative firm. The extent of coordination inside the firms is captured in a simple way, and market equilibrium is derived for potentially asymmetric firms using the concept of a replacement function. We use this model to address the question of profitability of horizontal mergers and of the welfare consequences of such mergers. Contrary to the standard literature, we find a wide range of potentially profitable mergers without having to refer to cost synergies. This result is driven by the effect of size in terms of the number of production facilities and by the strategic consequences of intra-firm decentralization. A number of seemingly conflicting results from the literature can be considered special cases of our model.

Keywords: merger; oligopoly; organization; vertical coordination (search for similar items in EconPapers)
JEL-codes: L13 L22 (search for similar items in EconPapers)
Date: 2005-02
New Economics Papers: this item is included in nep-acc, nep-com and nep-ind
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:aug:augsbe:0269

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