Profitability of Horizontal Mergers in Trigger Strategy Game

Berardino Cesi ()

No 06/4, Discussion Papers in Economics from Division of Economics, School of Business, University of Leicester

Abstract: It is shown that, in a dynamic competition, an exogenous horizontal merger is profitable even if a small share of active firms merge. However, each firm has incentive to remain outside the merger because it would benefit more (Insiders’dilemma). We show that in an infinite repeated game in which the firms use trigger strategies an exogenous bilateral merger can be profitable and the Insiders’dilemma is mitigated.

Keywords: Horizontal mergers; Insiders’ dilemma; trigger strategy (search for similar items in EconPapers)
JEL-codes: C73 D43 G34 L13 L41 (search for similar items in EconPapers)
Date: 2006-01
New Economics Papers: this item is included in nep-bec, nep-com, nep-fin, nep-ind and nep-mic
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