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Endogenous Mergers and Leadership Acquisition in Cournot Oligopolies

Walter Ferrarese ()
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Walter Ferrarese: University of Rome "Tor Vergata", http://www.ceistorvergata.it

No 398, CEIS Research Paper from Tor Vergata University, CEIS

Abstract: I set up an endogenous merger model in which, whenever firms agree to join in a coalition, the new entity acquires the leadership in a symmetric Cournot oligopoly. I first explore the case of a single merger and show that, despite being such merger profitable irrespective of the number of participants, only two endogenous equilibria are possible: either a bilateral coalition or an n - 1-firm coalition. I then allow for multiple coalitions and show that merger waves often occur as a firms' response to the exclusion of monopolization. In other cases, even if monopolization is allowed, the grand coalition does not form and at least one firm prefers to act as a follower. The model provides an explanation of why bilateral mergers are observed in almost every industry, even where synergies are unlikely and why it is possible to observe a single large entity behaving as a market leader. Furthermore, it provides a justification of the strategic nature of merger waves as a response to the exclusion of monopolization. I also check how my results vary with different ex-ante merger policies. Moreover, it is shown that bilateral mergers between identical firms generating no synergies can be beneficial to both consumers and producers.

Keywords: horizontal mergers; leadership acquisition; welfare (search for similar items in EconPapers)
JEL-codes: L11 L13 L41 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2017-02-10, Revised 2017-12-06
New Economics Papers: this item is included in nep-com, nep-ind and nep-mic
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