Efficiency Offence of Leading Merger

Abstract

We investigate consequences of a situation in which a merged subgroup of firms leads the market, after which merger experiences reduced marginal cost. Results show that while introduction of higher cost synergy to the model increases firms’ motive to merge, it may not necessarily mitigate concerns of “efficiency offence”. In fact, while exit strategy of outsiders may prevent efficiency of the merger to improve social welfare; cost synergy may excessively reinforce the phenomenon.