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Seoul Journal of Economics - Vol. 28 , No. 4
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Seoul Journal of Economics - Vol. 28, No. 4, pp. 455-485
Abbreviation: SJE
ISSN: 1225-0279 (Print)
Print publication date 30 Nov 2015
Received 25 Feb 2015 Revised 07 Aug 2015 Accepted 10 Nov 2015

Multi-Firm Mergers with Leaders and Followers
Gamal Atallah
Associate Professor, Department of Economics, University of Ottawa, 120 University Private, Ottawa, Ontario, K1N 6N5, Canada, Tel: 1-613-562-5800, ext. 1695, Fax: 1-613-562-5999 (gatallah@uottawa.ca)

JEL Classification: D43, L13

Abstract

This paper analyzes mergers involving several leaders and followers in Stackelberg models, with the merged entity acting as a leader. Adding a follower to a merger increases its profitability, and a merger between one leader and any number of followers is always profitable. When a merger involves two leaders, a sufficiently large proportion of followers is required for it to be profitable. A merger is less likely to be profitable when the number of participating leaders is intermediate and the number of participating followers is small. That is, merger profitability is monotonic in the number of followers but not in the number of leaders. All mergers involving leaders and followers are welfare-reducing. Overall, Stackelberg leadership partially alleviates the merger paradox.

Keywords: Mergers, Merger profitability, Merger paradox, Stackelberg, Leaders, Followers
Acknowledgments

I would like to thank two anonymous referees, Manuel Willington, and participants to the International Symposium on Economic Theory, Policy and Applications (Athens Institute for Education and Research), the annual conference of La Société canadienne de science économique, and the Annual International Industrial Organization Conference for useful comments and suggestions.

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