Can a small fish become a big fish? Modeling leader-generating mergers in a Stackelberg market

Hong Qiu, Nan Zhu and Qiyuan Peng

Finance Research Letters, 2021, vol. 38, issue C

Abstract: In this note we model two merger cases where the strategic position of a follower firm changes after a merger: 1) one follower and one leader merge into one new leader; and 2) two followers merge into one new leader. Our model indicates that these two leader-generating bilateral mergers are always profitable in the post-merger market. A free-riding issue exists in the first case, but not in the second case. The impacts on consumer surplus also vary with these two cases of mergers.

Keywords: Stackelberg market; Mergers; Linear costs (search for similar items in EconPapers)
JEL-codes: D43 L11 L13 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:38:y:2021:i:c:s1544612319313224

DOI: 10.1016/j.frl.2020.101684

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