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A Theory of Mergers and Merger Waves

Author

Listed:
  • Bingyong Zheng

    (School of Economics, Shanghai University of Finance and Economics, Shanghai 200433, China)

Abstract

We consider a sequential merger game between Cournot firms with homogeneous product and quadratic cost. A large slope of the marginal cost function or a small slope of inverse market demand are both predicted to increase the incentive to merge. The profitability of any merger increases with the number of mergers having already taken place. Thus, mergers tend to occur in waves in industries that have experienced exogenous shocks affecting firms¡¯ cost or demand. We also show some mergers that are not profitable for merged firms in the short-run may take place in the early stage of a wave.

Suggested Citation

  • Bingyong Zheng, 2012. "A Theory of Mergers and Merger Waves," Frontiers of Economics in China-Selected Publications from Chinese Universities, Higher Education Press, vol. 7(2), pages 193-217, June.
    • Handle: RePEc:fec:journl:v:7:y:2012:i:2:p:193-217
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    File URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-001-012-0009-5
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    More about this item

    Keywords

    horizontal mergers; merger waves; Cournot oligopoly;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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