Mergers to Monopoly

Horizontal mergers between firms that have different costs are examined. Owners can transfer technology to an acquired firm and decide whether to consolidate or operate their firms as separate entities in the product market. Thus mergers can exhibit both efficiencies and a market‐power effect. The p...

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Bibliographic Details
Published in:Journal of economics & management strategy 2002-10, Vol.11 (3), p.513-546
Main Author: Tombak, Mihkel M.
Format: Article
Language:English
Subjects:
Business strategies
Competition
Economic concentration
Game theory
Horizontal integration
Mergers
Monopolies
Technology transfer
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Summary:Horizontal mergers between firms that have different costs are examined. Owners can transfer technology to an acquired firm and decide whether to consolidate or operate their firms as separate entities in the product market. Thus mergers can exhibit both efficiencies and a market‐power effect. The prices of target firms are determined via a bargaining game. An equilibrium sequence of mergers entails the largest firm targeting the next largest rival firm. Initially, this sequence of mergers with technology transfers involves no consolidations and improves welfare. Ultimately, the acquisitions lead to consolidation and may decrease total welfare.
ISSN:1058-6407
1530-9134
DOI:10.1111/j.1430-9134.2002.00513.x