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Profitable Horizontal Mergers without Cost Advantages: The Role of Internal Organization, Information, and Market Structure

Steffen Huck
University College London - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research); Institute for the Study of Labor (IZA)

Kai A. Konrad
Max Planck Institute for Intellectual Property, Competition & Tax Law; Social Science Research Center Berlin (WZB); CESifo (Center for Economic Studies and Ifo Institute for Economic Research); Centre for Economic Policy Research (CEPR); Institute for the Study of Labor (IZA)

Wieland Müller
Tilburg University - Department of Economics

March 2001

CESifo Working Paper Series No. 435

Abstract:
Merged firms are typically rather complex organisations. 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.

Keywords: Merger, Organization, Information, Market Structure

JEL Classifications: D21, D43, L13, L22

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Steffen Huck (Contact Author) University College London - Department of Economics ( email ) Gower Street London WC1E 6BT WC1E 6BT United Kingdom +44 207 679 5895 (Phone) +44 207 916 2774 (Fax) HOME PAGE: http://www.ucl.ac.uk/~uctpshu/
CESifo (Center for Economic Studies and Ifo Institute for Economic Research) Poschinger Str. 5 DE-81679 Munich Germany
Institute for the Study of Labor (IZA) P.O. Box 7240 D-53072 Bonn Germany
Kai A. Konrad Max Planck Institute for Intellectual Property, Competition & Tax Law ( email ) Marstallplatz 1 Munich 80539 Germany HOME PAGE: http://www.ip.mpg.de/ww/en/pub/organization/ins_management/directors/prof__dr__kai_a__konrad.cfm
Social Science Research Center Berlin (WZB) ( email ) Reichpietschufer 50 Berlin 10785 Germany HOME PAGE: http://www.wzb.eu/mp/mps/people/kai_konrad.en.htm
CESifo (Center for Economic Studies and Ifo Institute for Economic Research) Poschinger Str. 5 Munich 81679 Germany
Centre for Economic Policy Research (CEPR) 90-98 Goswell Road London EC1V 7RR United Kingdom
Institute for the Study of Labor (IZA) P.O. Box 7240 Bonn 53072 Germany
Wieland Muller Tilburg University - Department of Economics ( email ) P.O. Box 90153 5000 LE Tilburg Netherlands +31 13 466 3460 (Phone) +31 13 466 3042 (Fax) HOME PAGE: http://center.uvt.nl/staff/muller/