Endogenous Merger with Learning

Erutku Can ()
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Erutku Can: Department of Economics, Glendon College, York University, 2275 Bayview Avenue, Toronto, ON M4N 3M6, Canada

The B.E. Journal of Economic Analysis & Policy, 2014, vol. 14, issue 3, 1169-1184

Abstract: We look at a concentrated market structure to determine the more likely merger when firms are initially asymmetric. A feature of the analysis is that a high cost firm participating in a merger can learn from the low cost participant. The determination of the equilibrium ownership structure (EOS) rests on the size of the cost asymmetries and learning abilities. Using an endogenous merger model, we find that the EOS always involves a merger between the two most efficient firms. This result holds whether firms adopt a decentralized or centralized structure post-merger and whether learning abilities are known or uncertain pre-merger. In most cases, welfare increases after the merger.

Keywords: endogenous; merger; asymmetry; learning (search for similar items in EconPapers)
JEL-codes: L13 L4 (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1515/bejeap-2013-0101

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