Endogenous Mergers in Concentrated Markets
CEPR Discussion Paper Series No. 1544
Posted: 19 Mar 1997
Date Written: December 1996
The merger literature almost exclusively considers mergers between exogenously specified firms. This paper proposes an approach to predict the pattern of mergers in situations where different mergers are feasible. It generalizes the traditional industrial organization approach, employing ideas on coalition-formation from cooperative game theory. The model suggests that in concentrated markets, equilibrium mergers are conducive to market structures with large industry profits, thus pointing to an inherent conflict between private and socially-correct merger incentives. While applying the model, light is also thrown on formation of research joint ventures, mergers between quantity-constrained firms, and tariff-jumping foreign direct investment.
JEL Classification: G34, C71, L22
Suggested Citation: Suggested Citation