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Mergers to Monopoly

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  • Mihkel M. Tombak

Abstract

Horizontal mergers between firms that have different costs are examined. Owners can transfer technology to an acquired firm and decide whether to consolidate or operate their firms as separate entities in the product market. Thus mergers can exhibit both efficiencies and a market‐power effect. The prices of target firms are determined via a bargaining game. An equilibrium sequence of mergers entails the largest firm targeting the next largest rival firm. Initially, this sequence of mergers with technology transfers involves no consolidations and improves welfare. Ultimately, the acquisitions lead to consolidation and may decrease total welfare.

Suggested Citation

  • Mihkel M. Tombak, 2002. "Mergers to Monopoly," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 11(3), pages 513-546, September.
    • Handle: RePEc:bla:jemstr:v:11:y:2002:i:3:p:513-546
    DOI: 10.1111/j.1430-9134.2002.00513.x
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    Cited by:

    1. Jeremiah Harris & Ralph Siebert, 2015. "Driven by the Discount Factor: Impact of Mergers on Market Performance in the Semiconductor Industry," CESifo Working Paper Series 5199, CESifo.
    2. Oberg, Christina & Holtstrom, Johan, 2006. "Are mergers and acquisitions contagious?," Journal of Business Research, Elsevier, vol. 59(12), pages 1267-1275, November.
    3. M. Pilar Socorro, 2009. "R&D investment as a signal in corporate takeovers," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 30(5), pages 335-350.
    4. Jacek Prokop, 2009. "Monopolisation of triopoly – revisited," International Journal of Computational Economics and Econometrics, Inderscience Enterprises Ltd, vol. 1(2), pages 113-125.
    5. Duarte Brito & Margarida Catalão‐Lopes, 2019. "Are Larger Merger Synergies Bad News for Consumers? Endogenous Post‐Merger Internal Organization," Scandinavian Journal of Economics, Wiley Blackwell, vol. 121(4), pages 1728-1756, October.
    6. Eileen Fumagalli & Tore Nilssen, 2019. "Sweetening the Pill: a Theory of Waiting to Merge," Journal of Industry, Competition and Trade, Springer, vol. 19(3), pages 351-388, September.
    7. Roland Kirstein, 2013. "Fight or buy? A comparison of internationalization strategies," FEMM Working Papers 130003, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
    8. Inderst, Roman & Wey, Christian, 2004. "The incentives for takeover in oligopoly," International Journal of Industrial Organization, Elsevier, vol. 22(8-9), pages 1067-1089, November.
    9. Harris, Jeremiah & Siebert, Ralph, 2017. "Firm-specific time preferences and postmerger firm performance," International Journal of Industrial Organization, Elsevier, vol. 53(C), pages 32-62.
    10. Ziss, Steffen, 2007. "Hierarchies, intra-firm competition and mergers," International Journal of Industrial Organization, Elsevier, vol. 25(2), pages 237-260, April.
    11. Tombak, Mihkel M., 2006. "Strategic asymmetry," Journal of Economic Behavior & Organization, Elsevier, vol. 61(3), pages 339-350, November.
    12. James Gaisford & Stefan Lutz, 2007. "A Multi-Product Framework Generating Waves of Mergers and Divestitures," ICER Working Papers 36-2007, ICER - International Centre for Economic Research.
    13. Gamal Atallah, 2016. "Endogenous Efficiency Gains from Mergers," Southern Economic Journal, John Wiley & Sons, vol. 83(1), pages 202-235, July.
    14. Bjorvatn, Kjetil, 2004. "Economic integration and the profitability of cross-border mergers and acquisitions," European Economic Review, Elsevier, vol. 48(6), pages 1211-1226, December.
    15. Fumagalli, Eileen & Nilssen, Tore, 2008. "Waiting to Merge," Memorandum 13/2008, Oslo University, Department of Economics.
    16. Margarida Catalão-Lopes & Duarte Brito, 2021. "Post-merger internal organization in multitier decentralized supply chains," Journal of Economics, Springer, vol. 132(3), pages 251-289, April.
    17. Mialon, Sue H., 2008. "Efficient horizontal mergers: The effects of internal capital reallocation and organizational form," International Journal of Industrial Organization, Elsevier, vol. 26(4), pages 861-877, July.
    18. Meza, Sergio & Tombak, Mihkel, 2009. "Endogenous location leadership," International Journal of Industrial Organization, Elsevier, vol. 27(6), pages 687-707, November.

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