Competitively cost advantageous mergers and monopolization

Morton I. Kamien*, Israel Zang

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review


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.

Original languageEnglish
Pages (from-to)323-338
Number of pages16
JournalGames and Economic Behavior
Issue number3
StatePublished - Aug 1991


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