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Horizontal alliances and the merger paradox

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  • James Sawler

    (Acadia University, Nova Scotia, Canada)

Abstract

Mergers and alliances are two organizational forms which allow firms to combine complementary capabilities to realize strategic goals; they are, in many cases, strategic substitutes. Managerial decision-makers, therefore, require a framework for choosing between the two strategies. This paper contributes to this decision-making process by highlighting one advantage of alliances over mergers. Specifically, while the profitability of a cost-reducing horizontal merger is diminished by the resulting expansion of non-merging competitor(s), an alliance, where partners collaborate to reduce costs but sell their product independently, enables its partners to realize the benefits of merging but avoid the problem of strengthening competitors. A model is developed which demonstrates the profitability of establishing such an alliance compared to a merger. The implications of this strategy for antitrust review are briefly discussed. Copyright © 2005 John Wiley & Sons, Ltd.

Suggested Citation

  • James Sawler, 2005. "Horizontal alliances and the merger paradox," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 243-248.
    • Handle: RePEc:wly:mgtdec:v:26:y:2005:i:4:p:243-248
    DOI: 10.1002/mde.1210
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    References listed on IDEAS

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    1. Cheung, Francis K., 1992. "Two remarks on the equilibrium analysis of horizontal merger," Economics Letters, Elsevier, vol. 40(1), pages 119-123, September.
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    Cited by:

    1. Gamal Atallah, 2015. "Multi-Firm Mergers with Leaders and Followers," Working Papers E1501E, University of Ottawa, Department of Economics.
    2. Manel Antelo & David Peón, 2019. "On Cooperation Through Alliances and Mergers," Journal of Industry, Competition and Trade, Springer, vol. 19(2), pages 263-279, June.
    3. Gamal Atallah, 2016. "Endogenous Efficiency Gains from Mergers," Southern Economic Journal, John Wiley & Sons, vol. 83(1), pages 202-235, July.
    4. Nobuyuki Takashima & Yasunori Ouchida, 2020. "Quality‐improving R&D and merger policy in a differentiated duopoly: Cournot and Bertrand equilibria," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 41(7), pages 1338-1348, October.
    5. Troncoso-Valverde, Cristián & Chávez-Bustamante, Felipe, 2024. "Do you want to know a secret? Strategic alliances and competition in product markets," European Journal of Operational Research, Elsevier, vol. 313(3), pages 1180-1190.
    6. Tsuyoshi Toshimitsu, 2017. "Merger Paradox in a Network Product Market: A Horizontally Differentiated Three-Firm Model," Discussion Paper Series 167, School of Economics, Kwansei Gakuin University, revised Sep 2017.

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