Merger Waves Through Market Leadership

Walter Ferrarese ()
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Walter Ferrarese: Universitat de les Illes Balears, Edificio Gaspar Melchor de Jovellanos

Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, 2021, vol. 7, issue 3, No 2, 385 pages

Abstract: Abstract I present a merger model where a merged entity is assumed to acquire the market leadership from a linear, symmetric, simultaneous, homogeneous good, quantity-setting oligopoly and where efficiency gains are ruled out. If firms cannot merge to monopoly, mergers occur in waves, and for each number of pre-merger firms, I endogenize: (i) the number of mergers in a wave; (ii) the number of firms involved in each merger; and (iii) the order in which the mergers take place. If monopolization is allowed, in the majority of cases, all firms prefer to merge into a single entity. This suggests the strategic nature of merger waves as a response to the prohibition of monopolization. Finally, in sharp contrast with the existing results on horizontal mergers under simultaneous quantity competition without efficiency gains, and in line with empirical findings, profitability is ensured even if mergers involve a small number of firms.

Keywords: Horizontal mergers; Leadership acquisition; Merger waves (search for similar items in EconPapers)
JEL-codes: L11 L13 L22 L41 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/s40797-019-00117-9

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