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Organic Mergers and Acquisitions

  • Ana Espínola-ArredondoEmail author
  • Felix Munoz-Garcia
  • Ae Rin Jung
Article
  • 6 Downloads

Abstract

This paper examines the competition between organic and non-organic firms, their incentives to undertake a horizontal merger, and the effect of mergers on firms’ market shares. We also consider an alternative setting where one firm can acquire its rival. For generality, we allow for product differentiation, demand, and cost asymmetries. Our results show that both organic and non-organic firms, despite their cost asymmetries and demand differentials, have incentives to merge under large conditions. When demand and cost differentials are significant, we identify settings under which a firm (either organic or non-organic) purchases its rival, to subsequently shut it down, and yet increase its profits. We then study under which conditions the merger can be welfare improving, which is more likely when goods are highly differentiated and their production costs are relatively symmetric.

Keywords

Horizontal integration Cost differential Organic products Mergers and acquisition 

JEL Classification

L4 Q10 D4 

Notes

References

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Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2019

Authors and Affiliations

  • Ana Espínola-Arredondo
    • 1
    Email author
  • Felix Munoz-Garcia
    • 1
  • Ae Rin Jung
    • 1
  1. 1.School of Economic SciencesWashington State UniversityPullmanUSA

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