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Efficient horizontal mergers: The effects of internal capital reallocation and organizational form

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  • Mialon, Sue H.

Abstract

This paper analyzes the resource reallocation problem in merged firms when the merged firms have a choice to retain competition between the merging partners. We consider horizontal mergers between firms that differ only in their initial capital levels. When initial capital levels are unequal, evenly distributing total capital between merging partners improves the overall cost efficiency of the merged firm. In this case, the merger often results in the multidivisional structure (the M-form) rather than the conventional structure of completely integrating merging partners because, under the M-form, the profits from aggressive production expansion backed by efficiency-improving capital reallocation is higher than the profits from output contraction and rationalization under complete integration. Such a merger enhances market competition. On the contrary, mergers between identical firms always induce complete integration.

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  • 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.
    • Handle: RePEc:eee:indorg:v:26:y:2008:i:4:p:861-877
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    Cited by:

    1. Gabriel Natividad, 2013. "Multidivisional Strategy and Investment Returns," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 22(3), pages 594-616, September.
    2. Sue H. Mialon, 2014. "Product Bundling And Incentives For Mergers And Strategic Alliances," Economic Inquiry, Western Economic Association International, vol. 52(2), pages 562-575, April.
    3. repec:hum:wpaper:sfb649dp2015-011 is not listed on IDEAS
    4. 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.
    5. Amir, Rabah & Diamantoudi, Effrosyni & Xue, Licun, 2009. "Merger performance under uncertain efficiency gains," International Journal of Industrial Organization, Elsevier, vol. 27(2), pages 264-273, March.
    6. Thomas Giebe & Miyu Lee, 2020. "Competitors in merger control: Shall they be merely heard or also listened to?," European Journal of Law and Economics, Springer, vol. 49(3), pages 431-453, June.
    7. Heywood, John S. & McGinty, Matthew, 2011. "Cross-border mergers in a mixed oligopoly," Economic Modelling, Elsevier, vol. 28(1-2), pages 382-389, January.
    8. Han, Aiping & Ge, Jianping & Lei, Yalin, 2016. "Vertical vs. horizontal integration: Game analysis for the rare earth industrial integration in China," Resources Policy, Elsevier, vol. 50(C), pages 149-159.
    9. 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.
    10. Jie Wu & Qingyuan Zhu & Wade D Cook & Joe Zhu, 2016. "Best cooperative partner selection and input resource reallocation using DEA," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 67(9), pages 1221-1237, September.

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