This paper shows that the profitability of merger in oligopoly is significa
ntly enhanced if firms delegate the output decision to an agent and then mo
tivate the latter using strategic rent shifting contracts. Two consequences
of increased profitability are that the minimum market share that the merg
ing parties require in order to merge profitably without efficiency gains,
as well as the maximum market share that the merging parties can possess in
order to guarantee that a profitable merger is welfare enhancing, are redu
ced. A third result is that delegation cannot reduce the set of endogenous
mergers. (C) 2001 Elsevier Science B.V. All rights reserved.