|Huck, Steffen; Konrad, Kai A.; Müller, Wieland; Normann, Hans-Theo (2007): The merger paradox and why aspiration levels let it fail in the laboratory. In: Economic Journal, Vol. 117, No. 522: pp. 1073-1095|
We study the merger paradox, a relative of Harsanyi's bargaining paradox, in an experiment. We examine bilateral mergers in experimental Cournot markets with initially three or four firms. Standard Cournot-Nash equilibrium predicts total outputs well. However, merged firms produce significantly more output than their competitors. As a result, mergers are not unprofitable. By analysing control treatments, we provide an explanation for these results based on the notion of aspiration levels, and show that the same logic also operates when a new firm enters a market. These results have some general consequences for adaptive play in changing environments. © 2007 The Author(s). Journal compilation Royal Economic Society 2007.
|Keywords:||firm size; market; merger|
Economics > Chairs > MPI for Tax Law and Public Finance
|Subjects:||300 Social sciences > 330 Economics|
|Deposited On:||08. Dec 2014 15:42|
|Last Modified:||08. Dec 2014 15:42|