Working Paper: CEPR ID: DP1544
Authors: Henrik Horn; Lars Persson
Abstract: 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.
Keywords: endogenous mergers; coalition formation
JEL Codes: L13; L41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| degree of market concentration (L13) | profitability of mergers (G34) |
| regulatory environment (G38) | market outcomes (P42) |
| quantity constraints (C35) | merger incentives (G34) |
| trade policies (F13) | merger behaviors (G34) |