Multi-Firm Mergers with Leaders and Followers

This paper analyzes mergers involving several leaders and followers in Stackelberg models, with the merged entity acting as a leader. Adding a follower to a merger increases its profitability, and a merger between one leader and any number of followers is always profitable. When a merger involves two leaders, a sufficiently large proportion of followers is required for it to be profitable. A merger is less likely to be profitable when the number of participating leaders is intermediate and the number of participating followers is small. That is, merger profitability is monotonic in the number of followers but not in the number of leaders. All mergers involving leaders and followers are welfare-reducing. Overall, Stackelberg leadership partially alleviates the merger paradox