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Article: Endogenous horizontal mergers under cost uncertainty

TitleEndogenous horizontal mergers under cost uncertainty
Authors
KeywordsCost uncertainties
Endogenous horizontal mergers
Production rationalization
Issue Date2008
PublisherElsevier BV. The Journal's web site is located at http://www.elsevier.com/locate/ijio
Citation
International Journal Of Industrial Organization, 2008, v. 26 n. 4, p. 903-912 How to Cite?
AbstractThis paper presents a study of endogenous horizontal mergers under cost uncertainty. Before knowing the exact values of their costs, firms decide sequentially whether or not to join a merger. After the merger decision is made, uncertainty is resolved and firms engage in Cournot competition with incomplete information about one another's costs. Due to production rationalization, the merged firms enjoy an advantage over non-merged firms in the sense that the merged firms' expected cost is lower. I show that mergers occur if and only if the uncertainty is large and that the larger the uncertainty, the greater the number of firms that will merge. Although a merger reduces competition and therefore hurts consumers, it improves productivity under cost uncertainty. I find that a merger increases social welfare whenever there are at least four firms in the industry before the merger. © 2007 Elsevier B.V. All rights reserved.
Persistent Identifierhttp://hdl.handle.net/10722/60217
ISSN
2015 Impact Factor: 0.866
2015 SCImago Journal Rankings: 1.085
ISI Accession Number ID
References

 

DC FieldValueLanguage
dc.contributor.authorZhou, Wen_HK
dc.date.accessioned2010-05-31T04:06:05Z-
dc.date.available2010-05-31T04:06:05Z-
dc.date.issued2008en_HK
dc.identifier.citationInternational Journal Of Industrial Organization, 2008, v. 26 n. 4, p. 903-912en_HK
dc.identifier.issn0167-7187en_HK
dc.identifier.urihttp://hdl.handle.net/10722/60217-
dc.description.abstractThis paper presents a study of endogenous horizontal mergers under cost uncertainty. Before knowing the exact values of their costs, firms decide sequentially whether or not to join a merger. After the merger decision is made, uncertainty is resolved and firms engage in Cournot competition with incomplete information about one another's costs. Due to production rationalization, the merged firms enjoy an advantage over non-merged firms in the sense that the merged firms' expected cost is lower. I show that mergers occur if and only if the uncertainty is large and that the larger the uncertainty, the greater the number of firms that will merge. Although a merger reduces competition and therefore hurts consumers, it improves productivity under cost uncertainty. I find that a merger increases social welfare whenever there are at least four firms in the industry before the merger. © 2007 Elsevier B.V. All rights reserved.en_HK
dc.languageengen_HK
dc.publisherElsevier BV. The Journal's web site is located at http://www.elsevier.com/locate/ijioen_HK
dc.relation.ispartofInternational Journal of Industrial Organizationen_HK
dc.rightsInternational Journal of Industrial Organization. Copyright © Elsevier BV.en_HK
dc.subjectCost uncertaintiesen_HK
dc.subjectEndogenous horizontal mergersen_HK
dc.subjectProduction rationalizationen_HK
dc.titleEndogenous horizontal mergers under cost uncertaintyen_HK
dc.typeArticleen_HK
dc.identifier.openurlhttp://library.hku.hk:4550/resserv?sid=HKU:IR&issn=0167-7187&volume=26&spage=903&epage=912&date=2008&atitle=Endogenous+horizontal+mergers+under+cost+uncertaintyen_HK
dc.identifier.emailZhou, W: wzhou@hkucc.hku.hken_HK
dc.identifier.authorityZhou, W=rp01128en_HK
dc.description.naturelink_to_subscribed_fulltext-
dc.identifier.doi10.1016/j.ijindorg.2006.10.010en_HK
dc.identifier.scopuseid_2-s2.0-43949097928en_HK
dc.identifier.hkuros146796en_HK
dc.relation.referenceshttp://www.scopus.com/mlt/select.url?eid=2-s2.0-43949097928&selection=ref&src=s&origin=recordpageen_HK
dc.identifier.volume26en_HK
dc.identifier.issue4en_HK
dc.identifier.spage903en_HK
dc.identifier.epage912en_HK
dc.identifier.isiWOS:000257003100004-
dc.publisher.placeNetherlandsen_HK
dc.identifier.scopusauthoridZhou, W=10739745800en_HK

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