Endogenous Mergers in Concentrated Markets

Henrik Horn and Lars Persson

No 1544, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: The merger literature almost exclusively considers mergers between exogenously specified firms. This paper proposes an approach to predict the pattern of mergers in situations where different mergers are feasible. It generalizes the traditional industrial organization approach, employing ideas on coalition-formation from cooperative game theory. The model suggests that in concentrated markets, equilibrium mergers are conducive to market structures with large industry profits, thus pointing to an inherent conflict between private and socially-correct merger incentives. While applying the model, light is also thrown on formation of research joint ventures, mergers between quantity-constrained firms, and tariff-jumping foreign direct investment.

Date: 1996-12
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Related works:
Journal Article: Endogenous mergers in concentrated markets (2001)
Working Paper: Endogenous Mergers in Concentrated Markets (1998)
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