Mergers and acquisitions

Abstract

this thesis, we focus on different dimensions related to mergers and acquisitions. In the first chapter, we introduce the inter linkages between the mergers and acquisitions, market structure, market size, cost structures of the firms and measures of public policy. This is followed by the four core chapters of the thesis, the first three of which are theoretical, followed by an empirical exercise that draws on some of the predictions of the third theoretical chapter. newlineIn the first core chapter i.e. Chapter 2 of the thesis, titled Choice between Cartel and Merger , we model the firm s decision between cartels and horizontal mergers as a means to increase profitability in the presence of a competitive fringe in the market. To model the problem, we use conjectural variation where the coefficient of conjectural variation is interpreted as a measure of competitive intensity. In the study, it is assumed that merger would yield higher profits as compared to the competitive fringe, since the former would lead to efficiency in fixed cost. On the other hand, in case of cartels, the higher profit is ensured by Stackelberg leadership, following Shaffer (1995). The study shows that in the absence of any regulations against cartels or mergers, firms always prefer cartel to merger, when mergers do not involve any efficiency gains. The difference in profit is maximum in a collusive industry and the least in a competitive industry. In fact when there is perfect competition in the market, neither cartels nor mergers in the absence of efficiency gains are preferred. This calls for regulation against cartels. We examine the effect of imposition of a penalty on cartel on the choice between cartel and merger in the absence and presence of merger regulation. Merger regulation takes the form of a review of effect of merger by antitrust authorities prior to a merger. The review of the effect of the merger is based on welfare criterion. A merger proposal is approved by the antitrust authority if it does not lead to a reduction in welfare.