Abstract

http://ssrn.com/abstract=998152
 
 

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The Merger Paradox and Why Aspiration Levels Let it Fail in the Laboratory


Steffen Huck


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

Kai A. Konrad


Max Planck Institute for Tax Law and Public Finance; Social Science Research Center Berlin (WZB); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute for Economic Research); Institute for the Study of Labor (IZA)

Wieland Müller


Tilburg University - Center and Faculty of Economics and Business Administration

Hans-Theo Normann


Heinrich Heine University Dusseldorf - Department of Economics; Max Planck Institute for Research on Collective Goods


Economic Journal, Vol. 117, No. 522, pp. 1073-1095, July 2007

Abstract:     
We study the merger paradox, a relative of Harsanyi's bargaining paradox, in an experiment. We examine bilateral mergers in experimental Cournot markets with initially three or four firms. Standard Cournot-Nash equilibrium predicts total outputs well. However, merged firms produce significantly more output than their competitors. As a result, mergers are not unprofitable. By analysing control treatments, we provide an explanation for these results based on the notion of aspiration levels, and show that the same logic also operates when a new firm enters a market. These results have some general consequences for adaptive play in changing environments.

Number of Pages in PDF File: 23

Accepted Paper Series





Date posted: July 8, 2007  

Suggested Citation

Huck, Steffen and Konrad, Kai A. and Müller, Wieland and Normann, Hans-Theo, The Merger Paradox and Why Aspiration Levels Let it Fail in the Laboratory. Economic Journal, Vol. 117, No. 522, pp. 1073-1095, July 2007. Available at SSRN: http://ssrn.com/abstract=998152 or http://dx.doi.org/10.1111/j.1468-0297.2007.02067.x

Contact Information

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)
Poschinger Str. 5
Munich, DE-81679
Germany
Institute for the Study of Labor (IZA)
P.O. Box 7240
Bonn, D-53072
Germany
Kai A. Konrad
Max Planck Institute for Tax Law and Public Finance ( email )
Marstallplatz 1
Munich, 80539
Germany
HOME PAGE: http://www.tax.mpg.de/en/pub/home.cfm
Social Science Research Center Berlin (WZB) ( email )
Reichpietschufer 50
Berlin, 10785
Germany
HOME PAGE: http://www.wzb.eu/mp/fff/people/kai_konrad.en.htm
Centre for Economic Policy Research (CEPR)
90-98 Goswell Road
London, EC1V 7RR
United Kingdom
CESifo (Center for Economic Studies and Ifo Institute for Economic Research)
Poschinger Str. 5
Munich, 81679
Germany
Institute for the Study of Labor (IZA)
P.O. Box 7240
Bonn, 53072
Germany
Wieland Müller
Tilburg University - Center and Faculty of Economics and Business Administration ( email )
P.O. Box 90153
Tilburg, 5000 LE
Netherlands
Hans-Theo Normann
Heinrich Heine University Dusseldorf - Department of Economics ( email )
Duesseldorf
Germany
Max Planck Institute for Research on Collective Goods ( email )
Kurt-Schumacher-Str. 10
D-53113 Bonn, 53113
Germany

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Citations:  12

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