TY - JOUR
T1 - Competitively cost advantageous mergers and monopolization
AU - Kamien, Morton I.
AU - Zang, Israel
PY - 1991/8
Y1 - 1991/8
N2 - We address two major questions. The first is, Does the potential for lower production costs lead to partial or complete monopolization of an industry through acquisition by one firm of all its rivals? The second is, Do competitively advantageous cost reducing mergers necessarily result in a lower equilibrium market price? These questions are addressed in terms of a two-stage noncooperative game in the first stage of which n owners, possessing n firms and producing a homogeneous product with a strictly convex cost function, bid for the possession of each other firm and then, in the second stage, operate the firms they acquired. Analysis of pure strategy subgame-perfect Nash equilibria of the game provides a mixed message. On one hand, there is no fear of complete or even substantial partial monopolization for industries with sufficiently numerous firms. But, some partial monopolization is possible and any such monopolization results in a product price increase and a total industry surplus decline.
AB - We address two major questions. The first is, Does the potential for lower production costs lead to partial or complete monopolization of an industry through acquisition by one firm of all its rivals? The second is, Do competitively advantageous cost reducing mergers necessarily result in a lower equilibrium market price? These questions are addressed in terms of a two-stage noncooperative game in the first stage of which n owners, possessing n firms and producing a homogeneous product with a strictly convex cost function, bid for the possession of each other firm and then, in the second stage, operate the firms they acquired. Analysis of pure strategy subgame-perfect Nash equilibria of the game provides a mixed message. On one hand, there is no fear of complete or even substantial partial monopolization for industries with sufficiently numerous firms. But, some partial monopolization is possible and any such monopolization results in a product price increase and a total industry surplus decline.
UR - http://www.scopus.com/inward/record.url?scp=0000049478&partnerID=8YFLogxK
U2 - 10.1016/0899-8256(91)90031-9
DO - 10.1016/0899-8256(91)90031-9
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AN - SCOPUS:0000049478
SN - 0899-8256
VL - 3
SP - 323
EP - 338
JO - Games and Economic Behavior
JF - Games and Economic Behavior
IS - 3
ER -