Endogenous merger formation in asymmetric markets: a reformulation and welfare analysis

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URI: http://nbn-resolving.de/urn:nbn:de:bsz:21-opus-18741
Dokumentart: WorkingPaper
Date: 2003
Source: Tübinger Diskussionsbeiträge der Wirtschaftswissenschaftlichen Fakultät ; 257
Language: English
Faculty: 6 Wirtschafts- und Sozialwissenschaftliche Fakultät
Department: Wirtschaftswissenschaften
DDC Classifikation: 330 - Economics
Keywords: Fusion
Other Keywords:
Asymmetric endogenous mergers , Coalition formation
License: http://tobias-lib.uni-tuebingen.de/doku/lic_ohne_pod.php?la=de http://tobias-lib.uni-tuebingen.de/doku/lic_ohne_pod.php?la=en
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This paper analyzes endogenous merger formation in oligopolistic markets where firms have different unit production costs. We reformulate the merger model, introduced by Barros (1998), by employing the core as cooperative equilibrium concept. We show that, depending on the size asymmetry in the pre-merger market, this alternative solution concept predicts a different post-merger market structure. For intermediate size differences, it is not the most efficient firm that is generally involved in the merger but the least efficient firm. Additionally, we present a welfare analysis which shows that under a wide range of size asymmetries, endogenous merger formation has a welfare improving net effect.

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