Merger Without Cost Advantages

CESifo Working Paper Series No. 1461

TILEC Discussion Paper No. 2005-019

22 Pages Posted: 30 Apr 2005

See all articles by Steffen Huck

Steffen Huck

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

Kai A. Konrad

Max Planck Institute for Tax Law and Public Finance; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute for Economic Research); IZA Institute of Labor Economics

Wieland Müller

University of Vienna, Department of Economics & VCEE; Tilburg University, Department of Economics & CentER

Date Written: May 2005

Abstract

The seminal paper by Salant, Switzer and Reynolds (1983) showed that merger in a standard Cournot framework with linear demand and linear costs is not profitable unless a large majority of the firms are involved in the merger. However, many strategic aspects matter for firm competition such as the internal organization of the firm, the time structure of decision making, information aspects of competition, or the imbeddedness of firm competition in a strategic trade competition game between governments. This survey will reveal that the puzzle as in Salant, Switzer and Reynolds (1983) may be resolved without recurring to cost savings of merger. Firms interact with each other, with customers, suppliers, their owners, and with governments in many different ways, and inspection of these types of interaction reveals a multiplicity of reasons why merger can be profitable for the merging firms, even in Cournot markets with linear demand and cost.

JEL Classification: D43, G43, L11, L13, L22, L41

Suggested Citation

Huck, Steffen and Konrad, Kai A. and Müller, Wieland, Merger Without Cost Advantages (May 2005). CESifo Working Paper Series No. 1461; TILEC Discussion Paper No. 2005-019. Available at SSRN: https://ssrn.com/abstract=713281

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

IZA Institute of Labor Economics

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

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

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, 53072
Germany

Wieland Müller

University of Vienna, Department of Economics & VCEE ( email )

Oskar-Morgenstern-Platz 1
Vienna, A-1090
Austria

HOME PAGE: http://https://homepage.univie.ac.at/wieland.mueller/

Tilburg University, Department of Economics & CentER ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

HOME PAGE: http://www.tilburguniversity.edu/webwijs/show/w.mueller-3.htm

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