Partial Mergers Research Articles

Endogenous Mergers in Markets with Vertically Differentiated Products

AbstractThis paper studies the incentives of firms selling vertically differentiated products to merge. To this aim, we introduce a three-stage game in which, at the first stage, three independent firms can decide to merge with their competitors via a sequential game of coalition formation and, at the second and third stage, they can optimally revise their qualities and prices, respectively. We study whether such binding agreements (i.e. full or partial mergers) can be sustained as subgame perfect equilibria of the coalition formation game, and analyze their effects on equilibrium qualities, prices and profits. We find that, although profitable, the merger-to-monopoly of all firms is not an outcome of the finite-horizon negotiation, where only partial mergers arise. Moreover, we show that all stable mergers always include the firm initially producing the bottom quality good and reduce the number of variants on sale.

Partial Cartels and Mergers with Heterogeneous Firms: Experimental Evidence

A usual assumption in the theory of collusion is that cartels are all-inclusive. In contrast, most real-world collusive agreements do not include all firms that are active in the relevant industry. This paper studies both theoretically and experimentally the formation and behavior of partial cartels. The theoretical model is a variation of Bos and Harrington’s (2010) model where firms are heterogeneous in terms of production capacities and individual cartel decisions are endogenized. The experimental study has two main objectives. The first goal is examine whether partial cartels emerge in the lab at all, and if so, which firms are part of it. The second aim of the experiment is to study the coordinated effects of a merger when partial cartels are likely to operate. The experimental results can be summarized as follows. We find that cartels are typically not all-inclusive and that various types of partial cartels emerge. We observe that market prices decrease by 20% on average after a merger. Our findings suggest that merger analysis that is based on the assumption that only full cartels forms produces misleading results. Our analysis also illustrates how merger simulations in the lab can be seen as a useful tool for competition authorities to back up merger decisions.

Regulating inter-firm agreements: The case of airline codesharing in parallel networks

We compare aviation markets under conditions of competition, codesharing contracts and anti-trust immune alliances, assuming that demand for flights depends on both fares and the level of frequency offered. Using a hybrid competitive/cooperative game theoretic framework, we show that the stronger the inter-airline agreement on overlapping routes, the higher the producer surplus. On the other hand, consumer surplus and overall social welfare are maximized under limited codesharing agreements. Partial mergers appear preferable to no agreement in ‘thin’ markets, in which both demand and profit margins are relatively low. Inter-governmental agreements are also analyzed and we show that bilaterals create the least favorable market outcomes for consumers and producers. Finally, a realistic case study demonstrates that under asymmetric and uncertain demand, codesharing on parallel links may be preferable to competitive outcomes for multiple consumer types.

Features of the interaction of interplanetary coronal mass ejections/magnetic clouds with the Earth's magnetosphere

The interaction of interplanetary coronal mass ejections (ICMEs) and magnetic clouds (MCs) with the Earth's magnetosphere exhibits various interesting features principally due to interplanetary parameters which change slowly and reach extreme values of long duration. These, in turn, allow us to explore the geomagnetic response to continued and extreme driving of the magnetosphere. In this paper we shall discuss elements of the following: (i) anomalous features of the flow in the terrestrial magnetosheath during ICME/MC passage and (ii) large geomagnetic disturbances when total or partial mergers of ICMEs/MCs pass Earth. In (i) we emphasize two roles played by the upstream Alfvén Mach number in solar wind–magnetosphere interactions: (i) It gives rise to wide plasma depletion layers. (ii) It enhances the magnetosheath flow speed on draped magnetic field lines. (By plasma depletion layer we mean a magnetosheath region adjacent to the magnetopause where magnetic forces dominate over hydrodynamic forces.) In (ii) we stress that the ICME mergers elicit geoeffects over and above those of the individual members. In addition, features of the non-linear behavior of the magnetosphere manifest themselves.

Measuring Unilateral Effects in Partial Acquisitions

Recent years have witnessed an increased interest, by competition agencies, in assessing the competitive effects of partial acquisitions. We propose an empirical structural methodology to examine quantitatively the unilateral impact of partial acquisitions involving pure financial interests and/or effective corporate control on prices, market shares,firm profits and consumer welfare. The proposed methodology can deal with differentiated products industries, with both direct and indirect partial ownership interests and nests full mergers (100% financial and control acquisitions) as a special case. We provide an empirical application to several acquisitions in the wet shaving industry.

Partial identification and mergers

This paper discusses policy choice under ambiguity in the context of merger simulation. We do so by incorporating the uncertainty about post-merger conduct into a simple merger simulation model. We isolate the problem of uncertainty regarding post-merger conduct by working with a simple “conduct parameters” model in the spirit of Bresnahan (1982) and Lau (1982). We then apply Manski’s (2011) analysis, and discuss policy choice under the maxmin, minimax-regret, and expected utility criteria.

Understanding partial mergers in Japan

Since the late 1990s, Japan has witnessed a substantial increase of partial mergers where two or more firms spin off whole operations in the same business and combine them into a joint venture (JV). This paper provides the first academic evidence on this phenomenon. I find that partial mergers normally occur as a response to negative economic shocks by firms that are larger and more diversified than firms in total mergers. An event study identifies positive and significant returns to partial merger announcements. Unlike total mergers whose value accrues mostly to the shareholders of small (acquired) firms, large and small firms in partial mergers receive comparable returns, which are particularly large to firms forming an equally owned JV. This study also finds that partial mergers are often ex post transformed, with equity sale between partners being the main source of change.

Pre‐emptive merger in a composite good framework

PurposeThe purpose of this paper is to study the question of pre‐emptive merger decisions in a composite good framework where these goods have both competitive and complementary features.Design/methodology/approachThe paper constructs a model of partial mergers when there are three firms and three goods in the production network, but consumers need only two goods to complete their consumption. This means, two of the firms produce two competing brands while the other firm produces any complementary product. Then under vertical merger cooperation takes place between two firms producing mutually compatible or complementary goods, whereas horizontal integration occurs when cooperating firms produce goods substitutes to each other.FindingsIn such a framework, partial mergers inflict strong negative externalities on the outside firms. The paper shows that loss of profits to the non‐integrated firm is higher under horizontal integration than that under vertical integration; hence pre‐emptive incentives for vertical merger are always larger. The paper clearly distinguishes between private incentives and pre‐emptive incentives for merger. If so desired, the vertically merged firm could foreclose the market of the outside firm and emerge as monopoly. Interestingly, foreclosing in our model is never optimal. The paper also provides a welfare analysis. While all‐firm merger maximizes social welfare, under vertical merger consumers are always better off. Industry profit also goes up if the goods are not so close substitutes.Originality/valueThis appears to be the first paper that discusses the question of pre‐emptive mergers in a framework of composite goods. Since, in the structure presented a horizontal merger always reduces welfare, one implication of the result is that the antitrust authority should not remain indifferent to the forms of merger actually taking place in a country.

The Universal Succession as a Technique of Corporate Restructuring: Efficiency and Limits

In many legal regimes, corporate restructuring operations are facilitated by the universal succession mechanism applied especially to operations of fusions, scissions and partial mergers. The universal succession is a particularly efficient instrument for the realization of those operations because it enables, notably, dissolutions without liquidation. However, we notice that this mechanism, likely to be applied generally and automatically, encounters various obstacles with different legal systems, French law bringing many illustrations of conflicts of principles limiting the scope of the universal succession.

Partial coordination and mergers among quantity-setting firms

We analyze horizontal mergers in a collusive environment by using an infinitely repeated game where (i) a subset of collusive firms is exogenously given and (ii) partially collusive arrangements are allowed for. We show that, in our model, there is no clear relation between the existence of mergers and full collusion at equilibrium. However, we demonstrate that the presence of mergers generally leads to a price increase. Also, we show that cartel firms have less incentives to merge than firms in a Cournot oligopoly, and that collusion increases fringe firms' incentives to merge.

A comparative analysis of the market-based and accounting-based performance of diversifying and non-diversifying acquisitions in Hong Kong

This paper investigates the short-term return performance and long-term operating performance of 36 partial mergers in Hong Kong during the period 1984–1996. We first conduct an event-study to evaluate the short-term market performance of the target, the bidder and a simulated combined portfolio consisting of both firms involved in the acquisition. The second method provides long-term performance indicators based on composite indices created from key financial ratios. The results of the event-study indicate that there are immediate share price gains to the target, acquiring and combined firms around the time the acquisition is announced. However, the long-term accounting-based performance analysis does not show a significant improvement in the 2 years following the acquisition for both the target and acquiring firms. No correlation is found between the short-term returns and the long-term performance indicators. These findings support the more recent literature on the potential benefits of diversification, and the view that diversifying acquisitions perform better than related acquisitions.

Geostrophic Vortex Merger and Streamer Development in the Ocean with Special Reference to the Merger of Kuroshio Warm Core Rings

A simple, quasigeostrophic, two-layer model was used to study the interactions of two like-signed vortices and streamer development in the ocean. In particular, models corresponding to the observed merger of two Kuroshio warm core rings were examined in detail. A quasigeostrophic shallow-water (QGSW) f-plane model reproduced many features of the observed merger; partial mergers were prevalent because critical point vortex breaking mostly determines QGSW mergers. The prevalence of partial baroclinic vortex mergers explain the frequent development of streamers from ring to ring. The QGSW critical merger distance is considerably reduced compared with the one for two-dimensional vortex mergers, especially in the parameter range where a large vortex wins. Moreover, the boundary of “which vortex wins” is more independent of vortex size for the QGSW case than in the 2D case, suggesting that a smaller vortex can more easily win and survive against a larger vortex than in the 2D case. This may explain the frequently observed northward development of warm streamers from newly generated large warm core rings toward older and smaller warm core rings, which had experienced winter and were located to the north of the new rings. Depending on the lower-layer vorticity distribution, upper-layer vortices undergo considerable meridional movement by heton-type coupling with lower-layer opposite-signed vortices. This movement might explain the tendency of Kuroshio warm core rings to move poleward. Possible modifications of vortex merger due to the planetary β effect were also discussed.

Two-dimensional asymmetric vortex merger: Contour dynamics experiment

The two-dimensional asymmetric merger of two like-signed uniform vorticity patches with different sizes (r i ) and vorticities (q i ) was examined with contour dynamics experiments. We determined the critical centroid distances for merger (d merger), which vortex survived the interaction and the processes involved in the merger. An explicit empirical critical merger distance was established asd merger/r 1 =a·(q 2/q 1)1/2·(r 2/r 1)+b (subscript 1 denotes the properties of the losing [destroyed] vortex and 2 the winning [not destroyed] vortex). The relationship seems applicable for wide range of parameters. The winning vortex was found to be determined primarily by vorticity rather than size. A small but strong enough vortex is absorbed into a larger and weaker vortex and becomes the high vorticity core of the merged vortex. A small and weak vortex is strained out to a thin filament. The vorticity ratio which determined when the first vortex was destroyed while the second survived, (q 2/q 1)win, was established empirically as a function of radius ratio,r 1/r 2. Forr 1/r 2∼1, (q 2/q 1)win is almost identical with the vorticity ratio (q 2/q 1)dmin which gives the minimum critical merger distance for the particular size ratior 1/r 2. For extremely large size ratio, (q 2/q 1)win>(q 2/q 1)dmin Partial mergers were seen for a centroid distance which is close to and less than the critical merger distance.

(M, R) systems as a framework for modelling structural change in a global industry

With the arrival of rapid global communication facilities via satellites, and the widespread availability of cheap worldwide transportation by air and sea, the phenomenon of the transnational corporation (TNC) has emerged, carrying with it a total and complete re-shaping of the structure and operation of major industrial activities. Prior to the advent of the TNC, large industries were considered nationally; now, for example, the automotive industry is scattered throughout the world with firms engaging in design in one place, production in another, and marketing and sales everywhere. The situation is further compounded and confused by a myriad of interlocking joint ventures, co-production agreements, partial mergers and so forth. What all of this amounts to is a discontinuous shift from one way of doing business to another, and from one industrial paradigm, emphasizing national centralization and domestic markets, to a global structure transcending national boundaries and, to a great extent, local governmental control. The problem of industrial structural change is basically how to account for this transition, how to understand its implications for the future evolution and development of a given industry, and how to gain some understanding of the way such changes can be directed, or managed, to avoid unnecessary chaos, disorder and economic upheavals during the transition periods from one structure to another.