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Title:Intra-firm Coordination and Horizontal Merger PDF Logo
Authors:Higl, Michael
Welzel, Peter
Issue Date:2005
Series/Report no.:Volkswirtschaftliche Diskussionsreihe / Institut für Volkswirtschaftslehre der Universität Augsburg 269
Abstract: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.
Subjects:merger
oligopoly
organization
vertical coordination
JEL:L13
L22
Document Type:Working Paper
Appears in Collections:Volkswirtschaftliche Diskussionsreihe, Universität Augsburg

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