The effect on firm output after its acquisition by a pure conglomerate

This paper explores the question of whether the optimal output of a competitive firm will be affected if it is acquired as an operating subsidiary of a pure conglomerate. The demand curves faced by all the subsidiaries vary randomly. The acquired firm's managers adapt their optimizing behavior...

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Bibliographic Details
Published in:Journal of economic behavior & organization 1998-09, Vol.36 (4), p.487-501
Main Author: Mantell, Edmund H.
Format: Article
Language:English
Subjects:
Acquisitions & mergers
Aquisition
Conglomerates
Consumer welfare
Diversification
Economic models
Economic performance
Mathematical economics
Output
Output rate
Pure conglomerate
Risk
Risk aversion
Studies
Subsidiaries
Welfare
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Summary:This paper explores the question of whether the optimal output of a competitive firm will be affected if it is acquired as an operating subsidiary of a pure conglomerate. The demand curves faced by all the subsidiaries vary randomly. The acquired firm's managers adapt their optimizing behavior in recognition of the fact that the firm's post-acquisition profits constitute only one locus of contribution to the parent company's aggregate profits. Four propositions are derived; collectively, they establish the conditions that apply to determine the difference between the firm's ante-acquisition output and its post-acquisition counterpart.
ISSN:0167-2681
1879-1751
DOI:10.1016/S0167-2681(98)00106-1