23 Pages Posted: 8 Jul 2007
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.
Suggested Citation: 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: https://ssrn.com/abstract=998152 or http://dx.doi.org/10.1111/j.1468-0297.2007.02067.x
By Luis Cabral
This is a Wiley-Blackwell Publishing paper. Wiley-Blackwell Publishing charges $38.00 .
File name: ecoj.
If you wish to purchase the right to make copies of this paper for distribution to others, please select the quantity.