Implications of unprofitable horizontal mergers: a positive external effect does not suffice to clear a merger!

Artikel

Standard analysis of mergers in oligopolies along the lines of the popular Farrell-Shapiro Framework (FSF) relies, regarding its policy conclusions, on the assumption that rational agents will only propose privately profitable mergers. If this assumption were held, a positive external effect of a proposed merger would represent a sufficient condition to allow the merger. However, the empirical picture on mergers and acquisitions reveals a significant share of unprofitable mergers, and economic theory, moreover, demonstrates that privately unprofitable mergers can be the result of rational action. Therefore, we drop this restrictive assumption and allow for unprofitable mergers to occur. This exerts a considerable impact on merger policy conclusions: while several insights of the original analysis are corroborated (e.g., efficiency defense), a positive external effect does not represent a sufficient condition for the allowance of a merger any longer. Applying such a rule would cause a considerable amount of false decisions.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Journal: Contemporary Economics ; ISSN: 2084-0845 ; Volume: 10 ; Year: 2016 ; Issue: 1 ; Pages: 13-26 ; Warsaw: Vizja Press & IT

Classification and Topics

• Classification: Wirtschaft ; Oligopoly and Other Imperfect Markets ; Monopolization; Horizontal Anticompetitive Practices ; Antitrust Law ; Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection
• Subject: mergers & acquisitions ; oligopoly theory ; horizontal merger policy ; profitability of mergers ; antitrust

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Budzinski, Oliver ; Kretschmer, Jürgen-Peter
• Event: Veröffentlichung
• (who): Vizja Press & IT
• (where): Warsaw
• (when): 2016

Further information

• DOI: doi:10.5709/ce.1897-9254.195
• Handle: http://hdl.handle.net/10419/162071
• Last update: 10.03.2025, 11:44 AM CET