Premium
HORIZONTAL MERGER WITH AN INEFFICIENT LEADER
Author(s) -
GELVES JUAN ALEJANDRO
Publication year - 2010
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/j.1467-9957.2009.02144.x
Subject(s) - economics , welfare , horizontal and vertical , microeconomics , asymmetry , monetary economics , industrial organization , market economy , mathematics , physics , geometry , quantum mechanics
In this paper we analyze two‐firm horizontal mergers between an inefficient leader and an efficient follower. The merger is profitable and may decrease price (increase welfare) if the market size is large enough. Furthermore, a merger involving a leader which decreases price hurts outsider firms and therefore resolves the free‐rider component of the merger paradox. Finally, it is shown that, when the market is large, these mergers always increase welfare regardless of the size of the cost asymmetry between leader and follower.