Research on the impact of merger on capacity and social welfare in different market environments

Aiyuan Tao, Ce Shi and Fengling Zou

Economic Research-Ekonomska Istraživanja, 2021, vol. 34, issue 1, 2225-2239

Abstract: Based on the current context of DE-Capacity in China, this article explores the impact of the merger of public and private firms on capacity and social welfare, with the aim of giving theoretical support to the current practice of mergers and acquisitions in China. With a mixed oligopoly model and Cournot-Nash equilibrium, we conclude that the merger of firms can achieve the goal of DE-Capacity in the market environment dominated by public firms, and that at the same time the social welfare will increase. We also find that if the modest privatisation is considered in the merger then the ultimate social welfare can also obtain further growth with DE-Capacity. In particular, according to the goal of welfare maximisation under different efficiency, we give the optimal privatisation ratio for the merger of public and private firms. However, in the market environment dominated by private firms, the merger of public and private firms cannot achieve the result of increasing social welfare along with DE-Capacity.

Date: 2021
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DOI: 10.1080/1331677X.2020.1862685

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