Horizontal mergers - profitability, welfare effects and merger control

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dc.contributor Aalto University en
dc.contributor Aalto-yliopisto fi
dc.contributor.author Hämäläinen, Elias
dc.date.accessioned 2013-12-18T11:19:20Z
dc.date.available 2013-12-18T11:19:20Z
dc.date.issued 2013
dc.identifier.uri https://aaltodoc.aalto.fi/handle/123456789/11865
dc.description.abstract This thesis discusses the welfare effects of horizontal mergers and firms' incentives to merge. More specifically, it analyzes a merger's impact on price level, conditions for a merger to increase welfare, the effect of synergies on a merger's profitability and merger policy aspects in the US and EU Merger Regulation. The study is conducted as a literature review and is based on the Industrial Organization theory. It begins with a discussion of efficiency gains and anticompetitive-effects of horizontal mergers and examines how these are assessed under different welfare standards. Efficiencies resulting from a merger are categorized to allocative, productive, dynamic, and transactional efficiencies. Welfare-reducing effects may arise if a merger leads to higher prices or a reduction in output as a result of unilateral or coordinated behavior. To examine the welfare consequences of mergers that both increase prices and create efficiencies, the Williamson trade-off model that balance the gains against anti-competitive effects is presented. Then I focus on few most important studies that evaluate the effects of horizontal mergers based mostly on game-theoretic non-collusive models of oligopoly. With a linear Cournot competition model, I show that a merger is uprofitable unless at least 80 percent of the firms in the industry are involved in the merger. This result, often referred as the merger paradox, is then resolved by showing that with sufficiently convex costs two Cournot competitors can profitably merge. Under the Bertrand price competition model with differentiated goods, mergers are shown to be always beneficial for the merging parties and even more profitable for the outsiders. The role of synergies and welfare effects of horizontal mergers are studied with a Cournot competition model that focuses on the efficiencies and external effects of mergers. This model shows that in the absence of synergies, a horizontal merger necessarily lead to an increase in price. However, only profitable mergers are proposed and if the merger has a positive external effect on consumers and the rival firms, it will also increase the welfare. In addition, the evolution of the US and EU merger control and their differences are discussed. Their approach towards unilateral effects and efficiency defense is examined and the competition tests applied by the competition authorities are introduced. Finally, new approaches to evaluate the effects of mergers are presented. These are merger simulation and Upward Pricing Pressure method that focuses on analyzing unilateral competitive effects of differentiated product mergers and was successfully introduced in the 2010 US Horizontal Merger Guidelines. en
dc.format.extent 86
dc.language.iso en en
dc.title Horizontal mergers - profitability, welfare effects and merger control en
dc.type G2 Pro gradu, diplomityö fi
dc.contributor.school Kauppakorkeakoulu fi
dc.contributor.school School of Business en
dc.contributor.department Department of Economics en
dc.contributor.department Taloustieteen laitos fi
dc.subject.keyword horizontal mergers
dc.subject.keyword game-theory
dc.subject.keyword oligopoly models
dc.subject.keyword efficiency gains
dc.subject.keyword unilateral effects
dc.subject.keyword coordinated effects
dc.subject.keyword synergies
dc.subject.keyword welfare effects
dc.subject.keyword competition policy
dc.identifier.urn URN:NBN:fi:aalto-201312198144
dc.type.dcmitype text en
dc.programme.major Economics en
dc.programme.major Kansantaloustiede fi
dc.type.ontasot Master's thesis en
dc.type.ontasot Pro gradu tutkielma fi
dc.subject.helecon kansantaloustiede
dc.subject.helecon economics
dc.subject.helecon yrityskaupat
dc.subject.helecon corporate acquisitions
dc.subject.helecon peliteoria
dc.subject.helecon game theory
dc.subject.helecon mallit
dc.subject.helecon models
dc.subject.helecon kilpailu
dc.subject.helecon competition
dc.ethesisid 13403
dc.date.dateaccepted 2013-12-02
dc.location P1 I

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