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| Author: | Zhou, W. |
| Title: | Large is beautiful: horizontal mergers for better exploitation of production shocks |
| Journal: | Journal of Industrial Economics
2008 : MAR, VOL 56:1 p. 68-93 |
| Index terms: | mergers costs welfare efficiency information |
| Language: | eng |
| Abstract: | The profitability of horizontal mergers is investigated in a situation in which firms face a production shock and therefore are uncertain about their future costs. In this paper it is shown that due to production rationalization, small-scale mergers can be profitable if the uncertainty is large. The efficiency gain in production also implies begin welfare consequences. Under cost uncertainty, a profitable merger always improves social welfare if no more than half of the industry's firms are allowed to merge. Finally, I show that the incentives to merge depend on the information structure. Firms are less likely to merge when they possess more information. |
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