When Multiple Merged Entities Lead in Stackelberg Oligopolies
I study a merger model among symmetric Cournot firms where—before a merger occurs—firms choose output simultaneously and in which a merged entity acquires the market leadership. I find conditions under which a single or multiple mergers are profitable and solve the free-riding problem. The model connects to Liu and Wang (Econ Lett 129:1–3, 2015), who show that a single leading entity can profitably merge with an arbitrary number of firms. The current paper extends their results in two directions: first, I find the conditions under which the free-riding issue is solved; second, I study the implications of multiple mergers, in which the merged entities are allowed to be heterogeneous in the number of merging firms. A welfare analysis shows that mergers may be welfare-enhancing—even without efficiency gains. Moreover, the set of welfare-enhancing mergers is the same irrespective of the measure that is used: consumer surplus only, or the sum of consumer surplus and industry profits. This suggests caution for the antitrust authorities in evaluating the overall effect of these mergers.
KeywordsHorizontal mergers Stackelberg markets Welfare
JEL ClassificationL11 L13 L22 L41
This paper is part of the first chapter of my Ph.D. thesis. I am extremely grateful to the Editor Lawrence J. White, two anonymous referees, my advisor Alberto Iozzi and the members of the Ph.D. defence committee Carmen Bevia, Luca Panaccione and Helder Vasconcelos. I am also grateful to Berardino Cesi, Lapo Filistrucchi, Antonio Nicoló, Francesco Ruscitti, Francois Salanié, the audience at seminars at the University of Rome Tor Vergata, the Max Planck Institute for Tax Law and Public Finance in Munich and the 2017 EARIE Conference in Maastricht.
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