A Theory of Mergers and Merger Waves

Bingyong Zheng

Frontiers of Economics in China-Selected Publications from Chinese Universities, 2012, vol. 7, issue 2, 193-217

Abstract: We consider a sequential merger game between Cournot firms with homogeneous product and quadratic cost. A large slope of the marginal cost function or a small slope of inverse market demand are both predicted to increase the incentive to merge. The profitability of any merger increases with the number of mergers having already taken place. Thus, mergers tend to occur in waves in industries that have experienced exogenous shocks affecting firms¡¯ cost or demand. We also show some mergers that are not profitable for merged firms in the short-run may take place in the early stage of a wave.

Keywords: horizontal mergers; merger waves; Cournot oligopoly (search for similar items in EconPapers)
JEL-codes: D43 L41 (search for similar items in EconPapers)
Date: 2012
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