Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/82805
Authors: 
Budzinski, Oliver
Kretschmer, Jürgen-Peter
Year of Publication: 
2009
Series/Report no.: 
Working Paper, Department of Environmental and Business Economics, University of Southern Denmark 84
Abstract: 
We demonstrate that the popular Farrell-Shapiro-framework (FSF) for the analysis of mergers in oligopolies 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 extend the FSF by explicitly allowing for unprofitable mergers to occur with some frequency. This exerts a considerable impact on merger policy conclusions: while several insights of the original FSF 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 positives.
Subjects: 
oligopoly theory
horizontal merger policy
profitability of mergers
antitrust
JEL: 
L13
L41
K21
D43
Document Type: 
Working Paper
Appears in Collections:

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.