Escrihuela-Villar, M. and R. Fauli-Oller
Spanish Economic Review – 10.4 (2008): 279-288.
Keywords: Mergers, asymmetries, Stackelberg, profitability
Abstract: It is well known that the profitability of horizontal mergers with quantity competition is scarce. However, in an asymmetric Stackelberg market we obtain that some mergers are profitable. Our main result is that mergers among followers become profitable when the followers are inefficient enough. In this case, leaders reduce their output when followers merge and this reduction renders the merger profitable. This merger increases price and welfare is reduced.