Scandinavian Working Papers in Economics

Working Papers in Economics,
University of Bergen, Department of Economics

No 04/03: Managerial delegation and merger incentives

Odd Rune Straume ()
Additional contact information
Odd Rune Straume: Institute for Research in Economics and Business Administration (SNF), Postal: Breiviksveien 40, N-5045 Bergen, Norway

Abstract: We analyse how the internal organisation of firms affects the correspondence between private and social incentives for horizontal merger. Applying a model of endogenous merger formation in a three-firm asymmetric Cournot industry, we contrast the cases of entrepreneurial and managerial firms. The use of strategic delegation increases both the probability that a merger takes place and the likelihood that the ‘wrong’ type of merger is undertaken, from a viewpoint of social welfare. This suggests that managerial delegation increases the scope for antitrust policy.

Keywords: Managerial delegation; Endogenous mergers; Cost asymmetry; Antitrust policy.

JEL-codes: D21; D43; L11; L21; L41

18 pages, January 7, 2003

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