The Merger-Paradox: A Tournament-Based Solution

Cuihong Fan and Elmar Wolfstetter

Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems from Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich

Abstract: According to the well-known “merger paradox†, in a Cournot market game mergers are generally unprofitable unless most firms merge. The present paper proposes an optimal merger mechanism. With this mechanism mergers are never unprofitable, more profitable than in other known mechanism, and in many cases welfare increasing. The proposed mechanism assumes that merged firms continue to operate as independent subsidiaries that are rewarded according to a simple and commonly observed relative performance measure.

Keywords: Mergers; multi-divisional firms; tournaments; industrial organization. (search for similar items in EconPapers)
JEL-codes: D4 L00 (search for similar items in EconPapers)
Date: 2014-08
New Economics Papers: this item is included in nep-bec, nep-com, nep-hrm and nep-ind
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: The merger-paradox: A tournament-based solution (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:trf:wpaper:478

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