When Efficient Firms Flock Together: Merger Incentives Under Yardstick Competition

Jonas Teusch ()
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Jonas Teusch: University of Liege

Review of Industrial Organization, 2019, vol. 55, issue 2, No 3, 237-255

Abstract: Abstract Local monopolists that are regulated by yardstick competition frequently merge with their peers. However, economic theory provides little guidance for merger analysis. In contrast, the theoretical model in this article shows that there can be room for strategic firm behaviour even in a setting where firms are many and collusion is not sustainable. Specifically, the article derives conditions under which firms propose welfare-decreasing mergers to avoid competition with efficient peers and establishes when peer effects discourage firms from implementing socially desirable mergers. Efficient peers flock together whereas inefficient firms remain independent, unless peer effects are counteracted by efficiency effects.

Keywords: Yardstick competition; Merger analysis; Incentive regulation (search for similar items in EconPapers)
JEL-codes: L11 L40 L51 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s11151-018-9670-8

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