Three essays on mergers and free riding

This dissertation consists of three essays that deal with mergers and free-riding. The first essay considers two-firm horizontal mergers by firms with asymmetric costs in the presence of a single leader. This essay highlights that two firm mergers involving an inefficient leader are profitable, and may decrease price (thus increase welfare). Furthermore, a merger involving a leader that causes a price decrease harms outside firms, and therefore resolves the free-rider component of the merger paradox. Finally, it is highlighted that when the market is large, these mergers always increase welfare regardless of the size of the asymmetry between an inefficient leader and an efficient follower.;The second essay of the dissertation combines two threads within the literature on mergers. First, it follows Colangelo (1995) in allowing for the possibility of both vertical and horizontal mergers. Second, it incorporates a renewed emphasis on the incentive of potential merging firms to free-ride by waiting for other firms to merge. By endogenizing the decision of firms to merge this paper finds that four possible outcomes are possible depending on final goods substitutability: (1) neither firm pursues the merger; (2) the upstream firm bids uncontested for the downstream firm; (3) the downstream firm preempts the vertical merger; (4) the upstream firm pre-empts the horizontal merger. The introduction of cost asymmetry in the downstream market results in the efficient firm being targeted, and makes outcomes (2) and (4) more likely to occur.;The third essay analyzes the merger between a cost inefficient public leader and an efficient follower. The public firm's interest in the merger comes from its prospects of enhancing welfare due to the cost savings generated by the merger. The private firm's incentive is provided by a private share of profit from the newly merged firm. This paper shows that there is always a private share where both the public firm and the private firm benefit from the merger. Hence, the merger increases welfare and is profitable for the private insider. Excluded rivals may benefit from the merger, but by a smaller amount than the private insider.