Bilateral merger in a leadership structure

In an oligopoly industry of k firms (k > 2) with linear demand and identical (constant) average cost of production, a bilateral merger is never profitable when all firms choose their quantities simultaneously. In this paper we reexamine the issue when some firms have first-mover advantage. We find that in a leader-follower structure a bilateral merger is always profitable when a leader and a follower merge together and the merged firm behaves like a leader. But, a bilateral merger between leaders or between followers may not be privately profitable.