Incentives to Form Coalitions with Bertrand Competition

Horizontal Mergers in the Presence of Vertical Relationships

“…Welfare effects of horizontal mergers have been investigated previously in the literature (Salant, Switzer, and Reynolds, 1983;Deneckere and Davidson, 1985;Perry and Porter, 1985;Farrell and Shapiro, 1990;McAfee and Williams, 1992). 1 Mankiw and Whinston (1986) and Suzumura and Kiyono (1987) show that, under a Cournot oligopoly model with fixed set-up costs, the level of entry in the free-entry equilibrium is socially excessive.…”

“…Fabinger and Weyl (2012) and Weyl and Fabinger (2013) argue that while they buy convenience, unnecessarily restrictive assumptions on curvature might lead to biased conclusions. 5 They show that demand curvature plays a central role in determining the rate of cost-pass through in models of imperfect competition. In the context of price discrimination, Aguirre, Cowan, and Vickers (2011) show that the differences in the curvature of demand between the weak and the strong markets is important for understanding how third-degree price discrimination affects welfare.…”

Optimal Acquisition Strategies in Unknown Territories

“…In fact, a proper acquisition strategy is important for a even when there are no cost e¢ ciencies. By allowing for product di¤erentiation and considering Bertrand competition, Deneckere and Davidson (1985) also show that mergers of any size are pro…table. successful merger/acquisition proposal.…”

“…The …rm observing the low-cost rival updates its priors, and hence expects less pro…ts. 6 In their study, the …rm making a merger proposal has no choice except to make a single o¤er to the existing target …rm because there is only one target by assumption. 7 In our study, however, we allow the foreign …rm to choose from various acquisition strategies.…”

“…Each acquisition strategy has important implications for both the foreign …rm's merger 5 The literature on endogenous mergers includes alternative approaches such as simultaneous bidding as in Zang (1990, 1991), sequential bidding as in Kamien and Zang (1993), and sequential voting on mergers as in Rodrigues (2001) and Zhou (2008). 6 Dassiou and Holl (1996), however, consider Bertrand competition and allow for product di¤erentiation, and show that information revealed by the target …rm rejecting the merger proposal negatively a¤ects not only the bidding …rm, but the target …rm as well. 7 Assuming a single target …rm simpli…es the analysis substantially, yet rules out the other possible acquisition strategies (i.e., bargaining sequentially or simultaneously with more than one target …rm).…”