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Consolidations and the Sequence of Acquisitions to Monopoly

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  • Petri Lehto
  • Mihkel M. Tombak

Abstract

We examine horizontal merger activity between firms which have differing costs. Upon merging owners can transfer technology to an acquired firm and can decide whether to operate their firms as separate entities in the product market or consolidate their acquisitions. Thus, in our analysis, mergers can exhibit both an efficiency effect and a market power effect. The purchase prices of target firms are determined via a bargaining game. We find that the largest firm is likely to be acquisitive and that the optimal sequence of mergers entails targeting the next largest rival firm. We find that not consolidating an acquired firm can reveal the intention to acquire additional firms. The optimal sequence of mergers with technology transfers and no consolidations is found initially to be welfare improving. Ultimately, however, the acquisitions lead to consolidation and a decrease in total welfare. ZUSAMMENFASSUNG - (Konsolidierungen und die Folge von Akquisitionen zum Monopol) In dem Beitrag werden horizontale Unternehmenszusammenschlüsse zwischen Unternehmen mit unterschiedlichen Kosten analysiert. Für das erwerbende Unternehmen stellt sich die Frage, ob es Technologie zu einer erworbenen Firma transferieren sollte und, ob es das erworbene Unternehmen als getrennte Einheit im Produktmarkt betreiben oder mit dem fusionierten Unternehmen zusammen am Markt operieren will. In der Analyse wird der Effizienzeffekt und der Marktmachteffekt berücksichtigt. Der Kaufpreis des zu erwerbenden Unternehmens wird in einem "bargaining game" ermittelt. Im Ergebnis zeigt sich, daß das größte Unternehmen wahrscheinlich das erwerbende sein wird und daß die optimale Reihenfolge von Fusionen sich auf das nächst größte Konkurrenzunternehmen bezieht. Außerdem zeigt sich, daß die Nichtkonsolidierung mit erworbenen Unternehmen daraufhin deutet, daß eine Intention zum Erwerb weiterer Firmen vorliegt. Die optimale Folge von Fusionen mit Technologietransfer und ohne Konsolidierungen erhöht anfangs die Wohlfahrt. Letztlich aber führen die Erwerbungen zur Konsolidierung und zu einem Absinken der Gesamtwohlfahrt.

Suggested Citation

  • Petri Lehto & Mihkel M. Tombak, 1997. "Consolidations and the Sequence of Acquisitions to Monopoly," CIG Working Papers FS IV 97-22, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
    • Handle: RePEc:wzb:wzebiv:fsiv97-22
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    2. Víctor E. Barrios & Luis M. Granero, 2008. "Governance‐Based Acquisitions And Risk Taking In Banking," Manchester School, University of Manchester, vol. 76(4), pages 369-390, July.

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