Which Way to Grow? Merging, Allying, or Buying Assets

We characterize the conditions under which firms choose to (i) merge, (ii) form an alliance, or (iii) trade assets. For that prupose, we distinguish between the firms' assets (what can be traded in isolation), thei knowhow (what can be learned but not traded), and their core competencies (what can neither be traded nor be learned). A merger is chosen when the two firms have similar core competencies. When one firm has markedly higher core competencies than the other, that firm operates the assets seperately if it also has markedly higher knowhow. Finally, an alliance is chosen when the firm with higher core competencies has lower knowhow.