Font Size: a A A

Research On Enterprise Merger Models Based On Game Theory

Posted on:2009-10-16Degree:DoctorType:Dissertation
Country:ChinaCandidate:J WuFull Text:PDF
GTID:1119360272981158Subject:Industrial Economics
Abstract/Summary:PDF Full Text Request
This dissertation is written in the context of the fifth merger wave . As an important means to enlarge rapidly for enterprises, merger has been watched out by academia, enterprises and governments with economic globalization. Enterprise merger has not only become one of the most important strategies for modern enterprises and multinational enterprises to expend and improve their competitive strength and outmatch their rival, but also becomes a strategic measure and instrument for a country to adjust industry structure and increase social welfare. Hence, we synthetically apply the theory of industrial organization, game theory and welfare economics, and present a serial of models to examine the incentive and social welfare of enterprise merger based on the oligopoly market.This dissertation is organized as follows:In Chapter One I offer the research background and significance are introduced. Besides, the relative research fields are briefly reviewed, and the paper's framework and main content are summarized.In Chapter Two, I add cost synergy to initial SSR model, analyzing the incentive and social welfare of horizontal mergers in three aspects: The effects of merger have usually been examined in the context of homogeneous goods, based on linear demand and symmetric constant marginal costs of production in extensive Cournot market, with a benchmark of SSR model for comparison.I study the profitability and welfare effects of merger in Cournot market. Synergy changes the merger equilibrium, and show that merger can be profitable and welfare enhancing if synergy is enough big. Synergy is a key element in the firms'incentives to merger.In Chapter Three, I show that there are the four kinds of bilateral mergers in dynamic Stakelberg markets with quantity competition, but these kinds of mergers have adverse effects on welfare due to concentration up .My main result is to extend initial Steffen-Kai-Wieland's model by analyzing that a small fish sometimes can eat a big fish—a'weak'firm incorporating'strong'firm . I derive the conditions under which a'weak'firm incorporating'strong'firm is privately profitable, but welfare reducing as well. This extended model can explain the wave of merger in a sense.In Chapter Four, first, I introduced classic Spengler model , then I presenting a models to extend original Spengler Moder. This model is based on Cournot quantity competition , where upstream and downstream firms are Cournot oligopolists. The result found that the number of downstream firms is bigger than Spengler number that I define, then the firms will adopt the vertical merger for obtain higher profit ; on the other hand if the number of downstream firms smaller than Spengler number, then the firms will adopt the vertical separation for obtain higher profit. Spengler's number of downstream firms will influence the integration which playes an important role. And all vertical merger (integration) can increase social welfare and consumer surplus .These conclusions are beneficial to the government's correctly understanding and conducting firms'merger behavior.In Chapter Five, Market foreclosure has for a long time been the prime policy concern in the context of vertical integration. The idea is that the umintegrated firm may have an incentive to exit the upstream market. Withdrawing from the upstream market might for example lead to a strategic gain in the sense that it increases the costs of downstream competitors. The strategy of integrating firms can win over competitive rivals ?I combine the economic analysis of the Chicago School with the newer methodology of modern industrial organization theory. Focusing on oligopoly market structures, where upstream firms are Bertrand oligopolists but downstream firms are Cournot oligopolists, this new analysis has shown how the logical difficulty in the traditional foreclosure theory can be resolved and how vertical mergers can lead to anticompetitive effects in some situations. The result finds that vertical mergers can harm competition under certain circumstances I derive these conditions. Of course, there are many other leading economists who have come to the conclusion that sometimes vertical mergers can help competition under certain circumstances,and vertical merger with no vertical foreclosure strategy can increase social welfare and consumer surplus . The results have lots of theoretic, practical values, and political significances for government to implement antitrust policy. This gives us an understanding of the characterization of the merging entities. A variety of scenarios is possible, depending upon which firm engages in strategic behavior, which one is the target, and whether integrating firms take strategic behavior with foreclosure strategy or non vertical foreclosure. A full analysis of the broad range of competitive situations and strategies is possible in the context of the extended model. I therefore provide an illustrative example and consider three possible strategies, and derive the optimal merger policy. I review some of the recent theoretical economics literature on vertical mergers, and discuss recent EC vertical merger guidelines that I believe are instructive as to Chinese vertical mergers guideline to come.In Chapter Six, I provide an explanation of cross merger based on asymmetric information,I apply this model to endogenous merger formation in an international oligopoly, and show that the equilibrium market structure is likely to be characterised by cross-border merger. My result is that cross-border merger will be evitable if a foreign enterprise has advantage of cost compared to a host enterprise. Asymmetric information alone does not become a hindrance of cross merger in a Cournot duopoly market and the Government can play an important role in mergers and antitrust policy.My dissertation makes main contributions as follows .(1) My extended horizontal model can explain under what condition the merger is profitable for integrating firms, why so many firm is go for the merger activity ,why umintegrated firms opposed the merger, under what condition the authorities should agreed to the merger, and under what condition the authorities should opposed it. We then identify the cases when an anti-trust agency's objective, which would neglect some elements , may differ from the position of a benevolent regulator. For example, Proposition 2.4~ Proposition2.12 belong to my results.(2) I extend original SKW model, which can explain that a'weak'firm incorporating'strong'firm to seldom occur in the reality, which theoretically obtains the reasonable explanation. Specially I derive the necessary and sufficient conditions that merger to occur. For example, Proposition 3.4 belongs to my results. (3) I principally advocate total social welfare as the merger efficiency goal, but when the merger in industry is critical for the live standard of people, government shall consider the consumer surplus as the merger efficiency standard, which requests merger to bring the final product price to drop, final output to rise, lets the common people enjoy the consumer surplus improvement .(4) I extend original Spengler Moder, where upstream and downstream firms are Cournot oligopolists. The result finds that the number of downstream firms is bigger than Spengler number that I define, then the firms will inclination to adopt the vertical merger, or to adopt the vertical separation. Spengler's number of downstream firms will influence the integration factor, which playes an important role. And all vertical merger (integration) can increase social welfare and consumer surplus .These conclusions are beneficial to the government's correctly understanding and conducting firms'merger behavior.(5)I has constructed a cross-border merger model under the asymmetrical information . I show that merger can be profitable and social welfare reducing here in a laissez-faire economy . Asymmetric information alone does not become a hindrance of cross border merger in a Cournot duopoly market and the Government can play an important role in mergers and antitrust policy. If the host country government will not carry on regulations to the foreign firm merger, merger will evolve the long-enduring process, and affect the national industry security. Therefore antitrust regulators are responsible for enforcing the antitrust laws in the merger activity that foreign firms refer to.
Keywords/Search Tags:Horizontal merger, Synergy, Merger paradox, Vertical merger Vertical foreclosure, Cross-border merger, Game theory, Regulation
PDF Full Text Request
Related items