Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/142321
Authors: 
Budzinski, Oliver
Kretschmer, Jürgen-Peter
Year of Publication: 
2015
Series/Report no.: 
Ilmenau Economics Discussion Papers 96
Abstract: 
Standard analysis of mergers in oligopolies along the lines of the popular Farrell-Shapiro-Framework (FSF) relies regarding its policy conclusions sensitively on the assumption that rational agents will only propose privately profitable mergers. If this assumption held, a positive external effect of a proposed merger would represent a sufficient condition to allow the merger. However, the empirical picture on mergers and acquisitions reveals a significant share of unprofitable mergers and economic theory, moreover, demonstrates that privately unprofitable mergers can be the result of rational action. Therefore, we drop this restrictive assumption and allow for unprofitable mergers to occur. This exerts a considerable impact on merger policy conclusions: while several insights of the original analysis are corroborated (f.i. efficiency defence), a positive external effect does not represent a sufficient condition for the allowance of a merger anymore. Applying such a rule would cause a considerable amount of false decisions.
Subjects: 
mergers & acquisitions
oligopoly theory
horizontal merger policy
profitability of mergers
antitrust
JEL: 
L13
L41
K21
D43
Document Type: 
Working Paper

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