Error message

Deprecated function: Array and string offset access syntax with curly braces is deprecated in include_once() (line 20 of /mnt/web104/a0/07/510451407/htdocs/includes/file.phar.inc).

Merger Performance under Uncertain Efficiency Gains

Printer-friendly version
Working paper
Author/s: 
Licun Xue, Rabah Amir and Effrosyni Diamantoudi
Issue number: 
2004.079
Publisher: 
FEEM
Year: 
2004
In view of the uncertainty over the ability of merging firms to achieve efficiency gains, we model the post-merger situation as a Cournot oligopoly wherein the outsiders face uncertainty about the merged entity's final cost. At the Bayesian equilibrium, a bilateral merger is profitable provided that non-merged firms sufficiently believe that the merger will generate large enough efficiency gains, even if ex post none actually materialize. The effects of the merger on market performance are shown to follow similar threshold rules. The findings are broadly consistent with stylized facts, and provide a rationalization for an efficiency consideration in merger policy.
Developed by Paolo Gittoi