Merger Performance under Uncertain Efficiency Gains

Licun Xue (), Rabah Amir () and Effrosyni Diamantoudi ()

No 2004.79, Working Papers from Fondazione Eni Enrico Mattei

Abstract: In view of the uncertainty over the ability of merging firms to achieve efficiency gains, we model the post-merger situation as a Cournot oligopoly wherein the outsiders face uncertainty about the merged entity’s final cost. At the Bayesian equilibrium, a bilateral merger is profitable provided that non-merged firms sufficiently believe that the merger will generate large enough efficiency gains, even if ex post none actually materialize. The effects of the merger on market performance are shown to follow similar threshold rules. The findings are broadly consistent with stylized facts, and provide a rationalization for an efficiency consideration in merger policy.

Keywords: Horizontal merger; Bayesian Cournot equilibrium; Efficiency gains; Market performance (search for similar items in EconPapers)
JEL-codes: D43 L11 L22 (search for similar items in EconPapers)
Date: 2004-05
New Economics Papers: this item is included in nep-com, nep-ind and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Merger performance under uncertain efficiency gains (2009)
Working Paper: Merger Performance under Uncertain Efficiency Gains (2008)
Working Paper: MERGER PERFORMANCE UNDER UNCERTAIN EFFICIENCY GAINS (2006)
Working Paper: Merger performance under uncertain efficiency gains (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:fem:femwpa:2004.79

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