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Estimating merging costs by merger preconditions. (English) Zbl 1163.91525

Summary: This article provides a method for estimating the bounds of transaction costs in horizontal mergers. Consider, for example, a completed monopoly merger in linear Cournot oligopolies with 10 symmetric firms. The method shows that its transaction costs are at most \(25\%\) (\(78\%\)) of total premerger profits if there is zero (\(100\%\)) excess capacity. Such estimations can be extended in a straightforward manner to other mergers and other oligopoly models. The estimation is based both on the profitability precondition, and on the non-empty core precondition, which postulates that the split of a merger’s profits be in its core. The article shows that the core in linear Cournot oligopolies has a non-empty interior, and indicates that the non-empty core precondition also sheds new lights on understanding important issues such as the stylized fact that mergers are likely to occur in markets plagued by excess capacities; why profitable mergers might not be formed; and why completed mergers might break up in the future.

MSC:

91B82 Statistical methods; economic indices and measures
91B26 Auctions, bargaining, bidding and selling, and other market models
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