Should Mergers Be Controlled?

Johan Stennek and Sven-Olof Fridolfsson

No 2705, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Anti-competitive mergers benefit competitors more than the merging firms. We show that such externalities reduce firms' incentives to merge (a hold-up mechanism). Firms delay merger proposals, thereby foregoing valuable profits and hoping other firms will merge instead - a war of attrition. The final result, however, is an overly concentrated market. We also demonstrate a surprising inter-temporal link. Merger incentives may be reduced by the prospect of additional profitable mergers in the future. The prospect of a future merger increases the value of becoming an insider in the first merger, which tends to hasten it. The prospect of a future merger may, however, increase the value of becoming an outsider in the first merger even more. If so, the first merger will be delayed by the prospect of the future merger. Merger control may help protect competition. Holdup and inter-temporal links make policy design more difficult, however. Even reasonable policies may be worse than not controlling mergers at all.

Keywords: Endogenous mergers and acquisitions; Coalition formation; Competition policy (search for similar items in EconPapers)
JEL-codes: C78 L12 L41 (search for similar items in EconPapers)
Date: 2001-02
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://cepr.org/publications/DP2705 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Working Paper: Should Mergers be Controlled? (2000)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:2705

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP2705

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().