Horizontal Mergers in a Dynamic Cournot Market: Solving the Free Riding Issue Without Efficiency Gains

Author:

Escrihuela-Villar Marc,Ferrarese WalterORCID

Abstract

Abstract We discuss horizontal mergers in a linear, homogeneous, symmetric Cournot market where the new entity repeatedly competes with outside firms over an indefinite horizon and efficiency gains are ruled out. If the degree of collusion among the outside firms is large enough, then, despite the large payoff of each outsider, we obtain output configurations solving both the profitability and the free riding issues. Such a result requires that mergers involve a sufficiently small number of firms, which is in sharp contrast with the findings in the literature and rationalize the empirical fact that relatively small mergers, even in absence of synergies, do actually occur and that, although outside firms may benefit from the merger of their rivals, insiders end up being better off. Finally, we show that merging can often be a more advantageous alternative than a fully collusive agreement, in which, moreover, the free riding component is not solved.

Publisher

Walter de Gruyter GmbH

Subject

Economics, Econometrics and Finance (miscellaneous),Economics and Econometrics

Reference106 articles.

Cited by 3 articles. 订阅此论文施引文献 订阅此论文施引文献,注册后可以免费订阅5篇论文的施引文献,订阅后可以查看论文全部施引文献

1. Downstream Profit Effects of Horizontal Mergers: Horn & Wolinsky and von Ungern-Sternberg Revisited;The B.E. Journal of Economic Analysis & Policy;2023-08-30

2. Mergers, multiperiod Cournot competition, and Coasian dynamics;Bulletin of Economic Research;2022-05-16

3. Merger Waves Through Market Leadership;Italian Economic Journal;2019-10-30

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