Charles J. Thomas
"The competitive effects of mergers between asymmetric firms"
JEL codes: D44, L4
Keywords: mergers, asymmetric firms, auctions
paper evaluates both efficiency increasing and efficiency decreasing mergers in
a procurement setting in which firms differ in the likelihood that they have
high production costs. Profitable efficiency increasing mergers often decrease
the expected price, but profitable efficiency decreasing mergers always increase
it. For a particular pair of firms, there may be no profitable mergers. If there
are, then the most profitable merger may decrease efficiency. Consequently,
merging firms that are able to choose their postmerger level of efficiency may
profitably elect to decrease it.
Pre-publication pdf copy, figures.