Merger, spin-off and divestiture: insights from a spatial model

Andreea Cosnita-Langlais

Economics Bulletin, 2006, vol. 4, issue 9, 1-9

Abstract: Mergers and spin-offs are typically opposite strategies for firms, and are not simultaneously profitable in a standard linear Cournot model. We propose a simple spatial Cournot framework, where merger is profitable but subsequent divisionalization is even more. However, this is true only for partial spin-off, not for total divisionalization, due to the opportunity for specific efficiency gains in a spatial setting. Finally, the resulting market structure is analyzed in terms of a post-merger divestiture required by the merger control authority. We show here the divestiture can be profitable for firms even if the merger was not, while still fulfilling its corrective role.

Keywords: divestiture (search for similar items in EconPapers)
JEL-codes: D4 L1 (search for similar items in EconPapers)
Date: 2006-02-08
References: Add references at CitEc
Citations: View citations in EconPapers (2)

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