Abstract
This paper proposes an approach to modeling endogenous merger formation, employing ideas on coalition formation from cooperative game theory. The model constitutes a generalization of the traditional IO criterion for whether firms have incentives to merge. The model suggests that in concentrated markets, mergers are conducive to market structures with large industry profits, and thus points to a potential conflict between private and social incentives. It is shown how mergers may be undertaken in order to preempt other possible, and socially more desirable, mergers. The model also throws light on the formation of research joint ventures.
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