Uncertainty and Horizontal Mergers

Kojun Hamada

Journal of Institutional and Theoretical Economics (JITE), 2012, vol. 168, issue 2, 252-265

Abstract: We examine the effect of uncertainty on horizontal mergers, considering that firms must decide whether to merge before observing the realized cost of the merged firm. The existing literature clarifies that merging firms facing cost uncertainty decide to merge if expected efficiency gains or informational advantages are positive. We show that even in the absence of uncertain efficiency gains or losses in expected terms, as the variance of uncertainty grows, horizontal mergers generate larger expected profits than before the merger and improve consumer surplus and welfare in expected terms. Our findings suggest that increased uncertainty itself provides an incentive for firms to merge.

JEL-codes: D43 L13 L22 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (6)

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