Wednesday, January 18, 2012
Posted by D. Daniel Sokol
Zhiyong Yao, Fudan University - School of Management and Wen Zhou, Hong Kong University of Science & Technology (HKUST) - Department of Economics describe Endogenous Merger Waves in Vertically Related Industries.
ABSTRACT: We study merger waves in vertically related industries where firms can engage in both vertical and horizontal mergers. Even though any individual merger would have been profitable, firms may refrain from merging for fear of negative impacts from other mergers. When they do merge, however, they always merge in waves, which is either vertical or horizontal depending on the relative intensity of double markup and horizontal competitions in the two industries. Finally, merger waves may happen with or without any fundamental change in the underlying economic conditions.