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Endogenous mergers and cost heterogeneity

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Abstract:

The objective of this article is to analyze the effect of firms' heterogeneity on their incentives to merge. To reach this target, merger decisions are modelled as endogenous. To simplify the analysis, we focus on the extreme case where merger leads to monopolization. Kamien and Zang (1990, 1993) give monopolization conditions in static and dynamic acquisition games. Introducing cost heterogeneity in a n-firm industry, we provide more general monopolization conditions. Indeed, we show that any industry can be monopolized if cost heterogeneity is large enough. This result provides new information to competition authorities on concentration possibilities and allows them to focus particularly on some industries.

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/00036840600905258

Affiliations: LASER-CREDEN University of Montpellier 1:, Montpellier, Cedex 2, France

Publication date: July 1, 2008

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