Working Paper Series,
Research Institute of Industrial Economics

Abstract: In a framework where mergers are mutually excluding, I show that firms pursue anti- rather than (alternative) pro-competitive mergers. Potential outsiders to anti-competitive mergers refrain from pursuing pro-competitive mergers if the positive externalities from anti-competitive mergers are strong enough. Potential outsiders to pro-competitive mergers pursue anti-competitive mergers if the negative externalities from the pro-competitive mergers are strong enough. Potential participants in anti-competitive mergers are cheap targets due to the risk of becoming outsiders to pro-competitive mergers. Firms may even pursue an unprofitable and anti-competitive merger, when alternative mergers are profitable and pro-competitive.

Keywords: Anti- and Pro-Competitive Mergers; Consumers Welfare; Coalition Formation; Endogenous Split of Surplus

JEL-codes: L12; L13; L41

Language: English

43 pages, February 5, 2007

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