Mergers, managerial incentives, and efficiencies

Dragan Jovanovic

We analyze the effects of synergies from horizontal mergers in a Cournot oligopoly where principals provide their agents with incentives to cut marginal costs prior to choosing output. We stress that synergies come at a cost which possibly leads to a countervailing incentive effect: The merged firm's principal may be induced to stifle managerial incentives in order to reduce her agency costs. Whenever this incentive effect dominates the well-known direct synergy effect, synergies actually reduce consumer surplus which opposes the use of an efficiency defense in merger control.

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Year of publication:	2014 ; [rev.]
Authors:	Jovanovic, Dragan
Publisher:	Düsseldorf : DICE
Subject:	Managerial Incentives \| Horizontal Mergers \| Merger Control \| Productive Efficiency Gains \| Synergies \| Efficiency Defense \| Fusion \| Merger \| Effizienz \| Efficiency \| Fusionskontrolle \| Merger control \| Theorie \| Theory \| Horizontale Integration \| Horizontal integration \| Führungskräfte \| Managers \| Anreiz \| Incentives \| Technische Effizienz \| Technical efficiency \| Synergie \| Synergy \| Übernahme \| Takeover \| Prinzipal-Agent-Theorie \| Agency theory \| Oligopol \| Oligopoly \| Wohlfahrtsanalyse \| Welfare analysis \| Leistungsanreiz \| Performance incentive \| Allokationseffizienz \| Allocative efficiency