Citation

Discussion Paper Details

Please find the details for DP4831 in an easy to copy and paste format below:

Full Details

Title: Mergers with Product Market Risk

Author(s): Albert Banal-Estanol and Marco Ottaviani

Publication Date: January 2005

Keyword(s): market imperfection, mergers and acquisitions, monopolization and horizontal anticompetitive practices and oligopoly

Programme Area(s): Industrial Organization

Abstract: This Paper studies the private incentives and the social effects of horizontal mergers among risk-averse firms. In our model, merging firms are allowed to choose how to split their joint profits, with implications for risk sharing and strategic behaviour in the product market. If firms compete in quantities, consolidation makes firms more aggressive due to improved risk sharing. Mergers involving few firms are then profitable with a relatively small level of risk aversion. With strong enough risk aversion, mergers result in lower prices and higher social welfare. If firms instead compete in prices, consumers do not benefit from mergers with demand uncertainty, but can easily benefit in markets with cost uncertainty.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=4831

Bibliographic Reference

Banal-Estanol, A and Ottaviani, M. 2005. 'Mergers with Product Market Risk'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=4831