Michael Higl, Peter
Welzel
Intra-firm Coordination
and Horizontal Merger
Abstract:
We look at an industry
of Cournot oligopolists each
of which
consists of production facilities which enjoy some degree of freedom in
deciding their output quantities and that way influence the total
output of a
firm. This structure can be motivated e.g. the existence of profit
centers or
by the specifics of a cooperative firm. The extent of coordination
inside the
firms is captured in a simple way, and market equilibrium is derived
for
potentially asymmetric firms using the concept of a replacement
function. We
use this model to address the question of profitability of horizontal
mergers
and of the welfare consequences of such mergers. Contrary to the
standard
literature, we find a wide range of potentially profitable mergers
without
having to refer to cost synergies. This result is driven by the effect
of size
in terms of the number of production facilities and by the strategic
consequences of intra-firm decentralization. A number of seemingly
conflicting
results from the literature can be considered special cases of our
model.
JEL: L22, L13
Paper:
Paper available as pdf-file.
Beitrag Nr. 269, Volkswirtschaftliche Diskussionsreihe, Institut
für
Volkswirtschaftslehre der Universität Augsburg
Contact:
Michael Higl, University of Augsburg, Department of Economics,
Universitätsstr. 16,
D-86159 Augsburg, Phone +49-821-598-4199; Fax +49-821-598-4230
E-Mail: michael.higl@wiwi.uni-augsburg.de
Peter Welzel, University of Augsburg, Department of Economics,
Universitätsstr. 16,
D-86159 Augsburg, Phone +49-821-598-4186; Fax +49-821-598-4230
E-Mail: peter.welzel@wiwi.uni-augsburg.de
v.
K., 23.02.2005