The Incentives for Takeover in Oligopoly

42 Pages Posted: 8 Feb 2002

See all articles by Roman Inderst

Roman Inderst

Goethe University Frankfurt

Christian Wey

University of Düsseldorf - Düsseldorf Institute for Competition Economics (DICE)

Date Written: January 2002

Abstract

This Paper presents a model of takeover incentives in an oligopolistic industry, which, in contrast to previous approaches, takes both insiders' and outsiders' gains from an increase in industry concentration into account. Our main application is to compare takeover incentives in a differentiated Cournot and Bertrand oligopoly model with linear demand and costs. We provide a complete analysis for arbitrary numbers of firms, complements and substitutes, and degrees of product differentiation. An increase in concentration is more likely under Cournot competition if products are complements and more likely under Bertrand competition if products are substitutes. Moreover, as products become closer substitutes, a takeover becomes more likely under Bertrand and less likely under Cournot competition.

Keywords: Merger, takeover bidding, oligopoly

JEL Classification: D43, D44, L10, L41

Suggested Citation

Inderst, Roman and Wey, Christian, The Incentives for Takeover in Oligopoly (January 2002). Available at SSRN: https://ssrn.com/abstract=299964

Roman Inderst (Contact Author)

Goethe University Frankfurt ( email )

Theodor-W.-Adorno-Platz 3
Frankfurt am Main, Hessen 60629
Germany
+49 (69) 798-34601 (Phone)
+49 (69) 798-35000 (Fax)

HOME PAGE: http://www.wiwi.uni-frankfurt.de/en/departments/finance/lehrstuhl/prof-dr-roman-inderst/team

Christian Wey

University of Düsseldorf - Düsseldorf Institute for Competition Economics (DICE) ( email )

Universitaetsstr. 1
Duesseldorf, NRW 40225
Germany
+49-211-81-15009 (Phone)
+49-211-81-15499 (Fax)

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