My dissertation consists of a collection of essays on assets ownership in concentrated markets.
The first chapter, Endogenous Mergers in Concentrated Markets, predicts the pattern of mergers in situations where different mergers are feasible. The merger literature almost exclusively considers mergers between exogenously specified firms. This paper proposes an approach to predict the pattern of mergers in situations where different mergers are feasible. It generalizes the traditional IO approach, employing ideas on coalition-formation from cooperative game theory. The model suggests that in concentrated markets, equilibrium mergers are conducive to market structures with large industry profits, and thus points to an inherent conflict between private and socially correct merger incentives.
The second chapter, The Equilibrium Ownership of an International Oligopoly, analyzes what mergers are undertaken in an international oligopoly market, and their welfare consequences. To this end, a simple theory of endogenous merger formation is developed. It is shown that trade costs induce firms to merge in order to "jump'' over these barriers, but that sufficiently high trade barriers instead induce domestic mergers, and that private and social incentives differ for weak synergies, but converge for strong synergies.
The third chapter, The Auctioning of a Failing Firm, evaluates the welfare consequences of the failing firm doctrine in the EU and US merger laws. This doctrine states that an otherwise illegal merger might be allowed, if the target is bankrupt. I combine an oligopoly model with an "endogenous valuations'' auction model, thus taking into account that, in an oligopoly, a firm's willingness to pay for the assets depends on the identity of the alternative buyer. The main result is that the doctrine leads to cost inefficiencies, due to a "least danger to competition'' (LDC) condition which favors small, and thus inefficient, firms.
The final chapter, Predation and Mergers: Is Merger Law Counterproductive, studies the interaction between predation and mergers. I show that in an oligopoly, the incentive for predation is limited by the subsequent competition for the prey. Firms may therefore prefer to predate to destroy the prey's assets, rather than just its financial viability. It is furthermore shown that a restrictive merger policy may be counterproductive, since it may increase the incentives for predation by helping\ predators avoid the bidding competition. Moreover, the incentive for predation under the US failing firm defense might be even stronger, since it allows mergers but limits the bidding competition.
Stockholm: Institute for International Economic Studies, Stockholm University , 1998. , 226 p.
1998-02-05, Hörsal 2, hus A, Södra huset, Frescati, Stockholm, 10:00 (English)