Effects of scale economy on merger profitability and efficiency
This thesis characterizes how a merger’s profitability and efficiency are affected by its size and by its scale economy factor d in a Cournot market with linear demand and quadratic costs. Our results allow us to challenge the widely believed view among economists that mergers typically are not profitable for the insiders (merged firms). In contrast to the minimum of 80% pre-merger market share required for the insiders to be profitable in Salant, Switzer and Reynolds (1983), our model shows that mergers with much less market share are also profitable. It is worth noting that in the market with diseconomies of scale (i.e., d>0), any two-firm merger could be profitable as long as its scale economy factor is greater than the critical value which is solely determined by the market size n. Our results also allow us to provide useful implications for antitrust laws especially the horizontal merger policy. In our model, mergers with economies of scale (i.e., d>-2 and d
DegreeMaster of Arts (M.A.)
CommitteeSari, Nazmi; Huq, M. Mobinul; Howe, Eric; Fulton, Murray E.
Copyright DateDecember 2004
Scale economy factor