Konrad, Kai A.; Huck, Steffen; Müller, Wieland
Merger without Cost Advantages.
CESifo Working Paper, 1461
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The seminal paper by Salant, Switzer and Reynolds (1983) showed that merger in a standard Cournot framework with linear demand and linear costs is not profitable unless a large majority of the firms are involved in the merger. However, many strategic aspects matter for firm competition such as the internal organization of the firm, the time structure of decision making, information aspects of competition, or the imbeddedness of firm competition in a strategic trade competition game between governments. This survey will reveal that the puzzle as in Salant, Switzer and Reynolds (1983) may be resolved without recurring to cost savings of merger. Firms interact with each other, with customers, suppliers, their owners, and with governments in many different ways, and inspection of these types of interaction reveals a multiplicity of reasons why merger can be profitable for the merging firms, even in Cournot markets with linear demand and cost.