Preemptive Mergers in a Vertically Differentiated Unionized Oligopoly Articles uri icon

authors

  • MESA SANCHEZ, FRANCISCO DE BORJA

publication date

  • September 2017

start page

  • 511

end page

  • 540

issue

  • 5

volume

  • 85

International Standard Serial Number (ISSN)

  • 1463-6786

Electronic International Standard Serial Number (EISSN)

  • 1467-9957

abstract

  • In the context of an international unionized oligopoly with vertical differentiation, the pattern of mergers is investigated. We show that mergers between firms producing the same-quality good lead wages to the reservation level, as well as maximize industry profits. However, it turns out that most of the market structure equilibria are shaped by mergers between producers of differentiated and homogeneous goods. This is so because mergers increase the market share of participating firms at the expense of that of the outsiders, leading to a scenario of preemptive mergers, where the main driving force can be to preempt rival mergers. Finally, it is shown that if three-firm mergers are not allowed, the strategic behavior of firms is eliminated, mergers between same-quality producers occur and social welfare is maximized.