Atlantic Economic Journal

, Volume 29, Issue 4, pp 378–392 | Cite as

Mergers, welfare, and concentration: Results from a model of stackelberg-cournot oligopoly

  • Nick Feltovich
Articles

Abstract

This paper explores the relationship between mergers, welfare, and concentration, using a two-stage oligopoly model that generalizes the Cournot and Stackelberg models. This model has been used to show that some profitable mergers raise welfare and that some welfare-lowering mergers are unprofitable. Based on this, one might conclude that policy designed to restrict mergers is unnecessary or even counterproductive. This present paper examines in greater detail the implications of this model and finds that a merger's effects depend not only on the reduction in the number of firms, but also on premerger and postmerger firm behavior. In fact, most mergers lower welfare, and many of these are profitable. Usually, but not always, changes in concentration and welfare are negatively related.

Keywords

International Economic Public Finance Firm Behavior Lower Welfare Oligopoly Model 

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Cournot, Augustin.Recherches sur les Principles Mathématiques de la Théorie des Richesses, Paris, France: Hachette, 1838 (English edition, Nathaniel Bacon, ed.,Research into the Mathematical Principles of the Theory of Wealth, New York, NY: Macmillan, 1897).Google Scholar
  2. Cowling, Keith; Waterson, Michael. “Price-Cost Margins and Market Structure,”Economica, 43, 171, August 1976, pp. 267–74.Google Scholar
  3. Daughety, Andrew F. “Beneficial Concentration,”American Economic Review, 80, 5, December 1990, pp. 1231–7.Google Scholar
  4. Farrell, Joseph; Shapiro, Carl. “Horizontal Mergers: An Equilibrium Analysis,”American Economic Review, 80, 1, March 1990, pp. 107–26.Google Scholar
  5. Hart, P. E. “Moment Distributions in Economics: An Exposition,”Journal of the Royal Statistical Society, A, 138, 3, 1975, pp. 423–34.Google Scholar
  6. Herfindahl, Orris C. ”Concentration in the U.S. Steel Industry,” unpublished thesis, Columbia University, 1950.Google Scholar
  7. Hirschman, Albert O.National Power and the Structure of Foreign Trade, Berkeley, CA: University of California Bureau of Business and Economic Research, 1945.Google Scholar
  8. Robson, Arthur J. ”Stackelberg and Marshall,”American Economic Review, 80, 1, March 1990, pp. 69–82.Google Scholar
  9. Salant, Stephen W.; Switzer, Sheldon; Reynolds, Robert J. ”Losses from Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium,”Quarterly Journal of Economics, 98, 2, May 1983, pp. 185–99.Google Scholar
  10. Sherali, Hanif D. ”A Multiple Leader Stackelberg Model and Analysis,”Operations Research, 32, 2, March/April 1984, pp. 390–404.Google Scholar
  11. Stackelberg, Heinrich.Marktform und Gleichgewicht, Austria, Vienna: Julius Springer, 1934.Google Scholar
  12. Stigler, George J. “A Theory of Oligopoly,”Journal of Political Economy, 72, 1, February 1964, pp. 44–61.Google Scholar

Copyright information

© International Atlantic Economic Society 2001

Authors and Affiliations

  • Nick Feltovich
    • 1
  1. 1.University of HoustonU.S.A.

Personalised recommendations