Merging with a buyer group member |
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| Authors: | Can Erutku Patrick de Lamirande |
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| Institution: | 1. Department of Economics, Glendon College, Toronto, Ont., Canada;2. Department of Financial and Information Management, Cape Breton University, Sydney, N. S., Canada |
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| Abstract: | We examine a merger between a national retailer and a local retailer who is a member of a buyer group. While the traditional literature on mergers assumes an oligopolistic industry (where the merger takes place) supplied by a perfectly competitive one, we assume here that retailers obtain their input from a supplier that can offer quantity discounts. In this setting, a merger can be profitable for insiders (solving the merger paradox) and can also be more profitable for insiders than for outsiders (solving the free‐riding problem). This result holds even if the merged firm ends‐up with a small share of the market. However, welfare decreases post‐merger. Copyright © 2009 John Wiley & Sons, Ltd. |
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