Merging with a buyer group member
Can Erutku and
Patrick de Lamirande ()
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Can Erutku: Department of Economics, Glendon College, Toronto, Ont., Canada, Postal: Department of Economics, Glendon College, Toronto, Ont., Canada
Managerial and Decision Economics, 2009, vol. 30, issue 7, 481-490
We examine a merger between a national retailer and a local retailer who is a member of a buyer group. While the traditional literature on mergers assumes an oligopolistic industry (where the merger takes place) supplied by a perfectly competitive one, we assume here that retailers obtain their input from a supplier that can offer quantity discounts. In this setting, a merger can be profitable for insiders (solving the merger paradox) and can also be more profitable for insiders than for outsiders (solving the free-riding problem). This result holds even if the merged firm ends-up with a small share of the market. However, welfare decreases post-merger. Copyright © 2009 John Wiley & Sons, Ltd.
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