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Frontiers of Economics in China

Front Econ Chin    2012, Vol. 7 Issue (2) : 193-217     https://doi.org/10.3868/s060-001-012-0009-5
research-article
A Theory of Mergers and Merger Waves
Bingyong Zheng()
School of Economics, Shanghai University of Finance and Economics, Shanghai 200433, China
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Abstract

We consider a sequential merger game between Cournot firms with homogeneous product and quadratic cost. A large slope of the marginal cost function or a small slope of inverse market demand are both predicted to increase the incentive to merge. The profitability of any merger increases with the number of mergers having already taken place. Thus, mergers tend to occur in waves in industries that have experienced exogenous shocks affecting firms’ cost or demand. We also show some mergers that are not profitable for merged firms in the short-run may take place in the early stage of a wave.

Keywords horizontal mergers      merger waves      Cournot oligopoly     
Corresponding Author(s): Bingyong Zheng,Email:bingyongzheng@gmail.com   
Issue Date: 05 June 2012
 Cite this article:   
Bingyong Zheng. A Theory of Mergers and Merger Waves[J]. Front Econ Chin, 2012, 7(2): 193-217.
 URL:  
http://journal.hep.com.cn/fec/EN/10.3868/s060-001-012-0009-5
http://journal.hep.com.cn/fec/EN/Y2012/V7/I2/193
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