Economics at your fingertips  

Profitability of horizontal mergers in the presence of price stickiness

Hamideh Esfahani

European Journal of Operational Research, 2019, vol. 279, issue 3, 941-950

Abstract: This paper investigates the profitability of horizontal mergers with price dynamics through the differential game approach wherein both the open and closed-loop equilibria are considered. It is shown that the incentive to merge is determined by how fast the market price adapts to the equilibrium level. When prices adjust with a very sticky mechanism, mergers emerge with a small number of insiders, even if firms play open-loop strategies, and total output reduction after a merger is not significant, even in mergers with a large number of insiders. In the case of instantaneous price adjustment, it can be shown that the relationship between the possibility of a merger and market concentration depends on the type of strategy firms play. These findings have important implications for antitrust authorities since: (a) price stickiness creates market conditions that facilitate merger practice, and (b) changes in output may not be a good benchmark for merger assessment in the case of price stickiness.

Keywords: Game theory; Horizontal mergers; Differential game; Sticky price (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this article

European Journal of Operational Research is currently edited by Roman Slowinski, Jesus Artalejo, Jean-Charles. Billaut, Robert Dyson and Lorenzo Peccati

More articles in European Journal of Operational Research from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

Page updated 2019-11-24
Handle: RePEc:eee:ejores:v:279:y:2019:i:3:p:941-950