Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 513: Endogenous Mergers in Concentrated Markets

Lars Persson () and Henrik Horn
Additional contact information
Lars Persson: The Research Institute of Industrial Economics, Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden
Henrik Horn: Institute for International Economic Studies, Postal: Stockholm University, SE-106 91 Stockholm, Sweden

Abstract: This paper proposes an approach for predicting the pattern of mergers when different mergers are feasible. It generalizes the traditional IO approach, employing ideas on coalition-formation from cooperative game theory. The model suggests that in concentrated markets, mergers are conductive to market structures with large industry profits, and thus points to a conflict between private and social incentives. It is shown how mergers may be undertaken in order to preempt other possible, and socially more desirable, mergers. The model also throws light on the formation of research joint ventures and tariff-jumping foreign direct investment.

Keywords: Endogenous mergers; coalition formation

JEL-codes: L13; L41

43 pages, July 15, 1998

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