Abstract
It is well known that the profitability of horizontal mergers with quantity competition is scarce. However, in an asymmetric Stackelberg market we obtain that some mergers are profitable. Our main result is that mergers among followers become profitable when the followers are inefficient enough. In this case, leaders reduce their output when followers merge and this reduction renders the merger profitable. This merger increases price and welfare is reduced.
Similar content being viewed by others
References
Bulow J, Geanakoplos J and Klemperer P (1985). Multimarket oligopoly: strategic substitutes and complements. J Polit Econ 93: 488–511
Cho D-S, Kim D-J and Rhee DK (1998). Latecomer strategies: evidence from the semiconductor industry in Japan and Korea. Organ Sci 9(4): 489–505
Daughety A (1990). Beneficial concentration. Am Econ Rev 80: 1231–1237
Farrell J and Shapiro C (1990). Horizontal mergers: an equilibrium analysis. Am Econ Rev 80: 107–126
Faulí-Oller R (1997). On merger profitability in a Cournot setting. Econ Lett 54: 75–79
Huck S, Konrad KA and Müller W (2001). Big fish eat small fish: on merger in Stackelberg markets. Econ Lett 73: 213–217
Perry MK and Porter RH (1985). Oligopoly and the incentive for horizontal merger. Am Econ Rev 75: 219–227
Sadanand A and Sadanand V (1996). Firm scale and the endoneous timing of entry: a choice between commitment and flexibility. J Econ Theory 70: 516–530
Salant SW, Switzer S and Reynolds RJ (1983). Losses from horizontal mergers: the effects of an exogenous change in industry structure on a Cournot-Nash equilibrium. Q J Econ 98(2): 185–199
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Escrihuela-Villar, M., Faulí-Oller, R. Mergers in asymmetric Stackelberg markets. Span Econ Rev 10, 279–288 (2008). https://doi.org/10.1007/s10108-007-9038-y
Published:
Issue Date:
DOI: https://doi.org/10.1007/s10108-007-9038-y