MERGERS UNDER UNCERTAINTY: THE EFFECTS OF DEBT FINANCING
In this paper, we consider a Cournot oligopoly with demand uncertainty, fixed costs and constant marginal costs. The demand uncertainty makes some mergers that would be unprofitable in a certain environment profitable in this model. However, socially advantageous mergers may be still unprofitable for the colluding firms, so public intervention may be needed. One possibility consists in subsidizing such mergers. However, the combination of limited liability debt financing and an appropriate antitrust policy leads to higher social welfare than subsidies. The reason is that, given the limited liability effect, merging parties compete more aggressively, so the reduction in market quantity is mitigated. Copyright © 2007 The Author; Journal compilation © 2007 Blackwell Publishing Ltd and The University of Manchester.
Year of publication: |
2007
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Authors: | SOCORRO, M. PILAR |
Published in: |
Manchester School. - School of Economics, ISSN 1463-6786. - Vol. 75.2007, 5, p. 580-597
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Publisher: |
School of Economics |
Saved in:
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