Working Paper: CEPR ID: DP3163
Authors: Roman Inderst; Christian Wey
Abstract: This Paper presents a model of takeover incentives in an oligopolistic industry, which, in contrast to previous approaches, takes both insiders' and outsiders' gains from an increase in industry concentration into account. Our main application is to compare takeover incentives in a differentiated Cournot and Bertrand oligopoly model with linear demand and costs. We provide a complete analysis for arbitrary numbers of firms, complements and substitutes, and degrees of product differentiation. An increase in concentration is more likely under Cournot competition if products are complements and more likely under Bertrand competition if products are substitutes. Moreover, as products become closer substitutes, a takeover becomes more likely under Bertrand and less likely under Cournot competition.
Keywords: merger; oligopoly; takeover; bidding
JEL Codes: D43; D44; L10; L41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| insiders' share of total industry gains (D33) | probability of takeover (G34) |
| outsiders' gains compared to insiders' gains (D63) | probability of takeover (G34) |
| type of competition (Cournot vs. Bertrand) (L13) | likelihood of takeover (G34) |
| nature of goods (complements vs. substitutes) (D10) | likelihood of takeover (G34) |
| degree of product differentiation (L15) | probability of takeover (G34) |