Consolidations and the sequence of acquisitions to monopoly

We examine horizontal merger activity between firms which have differing costs. Upon merging owners can transfer technology to an acquired firm and can decide whether to operate their firms as separate entities in the product market or consolidate their acquisitions. Thus, in our analysis, mergers can exhibit both an efficiency effect and a market power effect. The purchase prices of target firms are determined via a bargaining game. We find that the largest firm is likely to be acquisitive and that the optimal sequence of mergers entails targeting the next largest rival firm. We find that not consolidating an acquired firm can reveal the intention to acquire additional firms. The optimal sequence of mergers with technology transfers and no consolidations is found initially to be welfare improving. Ultimately, however, the acquisitions lead to consolidation and a decrease in total welfare.