The seminal paper by Salant, Switzer and Reynolds (1983) showed that merger in a standard Cournot framework with linear demand and linear costs is not profitable unless a large majority of the firms are involved in the merger. However, many strategic aspects matter for firm competition such as...

We develop a model in which the heterogeneous firms in an industry choose their modes of organization and the location of their subsidiaries or suppliers. We assume that the principals of a firm are constrained in the nature of the contracts they can write with suppliers or employees. Our main...