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Profitable Horizontal Mergers without Cost Advantages: The Role of Internal Organization, Information and Market Structure
Author(s) -
Huck Steffen,
Konrad Kai A.,
Müller Wieland
Publication year - 2004
Publication title -
economica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.532
H-Index - 65
eISSN - 1468-0335
pISSN - 0013-0427
DOI - 10.1111/j.0013-0427.2004.00389.x
Subject(s) - competitor analysis , industrial organization , market structure , welfare , business , microeconomics , economics , marketing , market economy
Merged firms are typically rather complex organizations. Accordingly, merger has a more profound effect on the structure of a market than simply reducing the number of competitors. We show that this may render horizontal mergers profitable and welfare‐improving even if costs are linear. The driving force behind these results, which help to reconcile theory with various empirical findings, is the assumption that information about output decisions flows more freely within a merged firm. This induces a commitment advantage for the merged firm.