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- Title
The Merger Paradox and why Aspiration Levels Let it Fail in the Laboratory.
- Authors
Huck, Steffen; Konrad, Kai A.; Müller, Wieland; Normann, Hans-Theo
- Abstract
We study the merger paradox, a relative of Harsanyi's bargaining paradox, in an experiment. We examine bilateral mergers in experimental Cournot markets with initially three or four firms. Standard Cournot-Nash equilibrium predicts total outputs well. However, merged firms produce significantly more output than their competitors. As a result, mergers are not unprofitable. By analysing control treatments, we provide an explanation for these results based on the notion of aspiration levels, and show that the same logic also operates when a new firm enters a market. These results have some general consequences for adaptive play in changing environments.
- Subjects
MERGERS &; acquisitions; MARKET entry; INPUT-output analysis; PARADOX; SUPPLY &; demand; COMPARATIVE studies
- Publication
Economic Journal, 2007, Vol 117, Issue 522, p1073
- ISSN
0013-0133
- Publication type
Article
- DOI
10.1111/j.1468-0297.2007.02067.x