Merger wave in a small world: Two views

Li Way Lee

Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), 2013, vol. 43, issue C, 68-71

Abstract: I attempt a more balanced assessment of mergers in terms of systemic risk versus other effects. First, using the simplest network model, I illustrate how mergers can increase systemic risk by reducing the degree of separation among firms. Then, recasting the firms in a simple economic model that features consumers explicitly, I show how a merger wave – a contagious urge to merge – can occur and what benefit it may bring to consumers. Together, these two models suggest that there is a tradeoff to consider: While a merger wave may result in higher systemic risk, it may also bring about higher consumer welfare.

Keywords: Merger wave; Small world; Financial network; Merger contagion; Systemic risk; Product differentiation (search for similar items in EconPapers)
JEL-codes: D03 G01 G34 L25 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:soceco:v:43:y:2013:i:c:p:68-71

DOI: 10.1016/j.socec.2013.01.009

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