Resource title

Intra-firm Coordination and Horizontal Merger

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Resource description

We look at an industry of Cournot oligopolists each of which consists of production facilities which enjoy some degree of freedom in deciding their output quantities and that way influence the total output of a firm. This structure can be motivated e.g. the existence of profit centers or by the specifics of a cooperative firm. The extent of coordination inside the firms is captured in a simple way, and market equilibrium is derived for potentially asymmetric firms using the concept of a replacement function. We use this model to address the question of profitability of horizontal mergers and of the welfare consequences of such mergers. Contrary to the standard literature, we find a wide range of potentially profitable mergers without having to refer to cost synergies. This result is driven by the effect of size in terms of the number of production facilities and by the strategic consequences of intra- firm decentralization. A number of seemingly conflicting results from the literature can be considered special cases of our model.

Resource author

Michael Higl, Peter Welzel

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Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/22792

Resource license

Adapt according to the presented license agreement and reference the original author.