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Insider's Dilemma: a General Solution in a Repeated Game

Berardino Cesi (berardino.cesi@uniroma2.it) and Walter Ferrarese (walterferrarese@yahoo.it)
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Walter Ferrarese: DEDI, University of Rome "Tor Vergata", http://www.ceistorvergata.it

No 350, CEIS Research Paper from Tor Vergata University, CEIS

Abstract: We show that in an infinitely repeated Cournot game when firms adopt stick and carrot strategies exogenous horizontal mergers are profitable regardless the size of the merged entity. We characterize an equilibrium in which the new entity maximizes its discounted intertemporal profit under the constraint that each outsider produces just enough to be better off after the merger. Once the merger has occurred each insider gains more than each outsider, therefore the insider's dilemma is completely solved.

Keywords: Insider's dilemma; horizontal mergers; repeated games; stick and carrot strategy (search for similar items in EconPapers)
JEL-codes: L11 L12 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2015-07-14, Revised 2015-07-14
New Economics Papers: this item is included in nep-bec, nep-com, nep-gth and nep-hpe
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