Endogenous mergers in concentrated markets

This paper proposes an approach to modeling endogenous merger formation, em ploying ideas on coalition formation from cooperative game theory. The mode l constitutes a generalization of the traditional IO criterion for whether firms have incentives to merge. The model suggests that in concentrated mar kets, mergers are conducive to market structures with large industry profit s, and thus points to a potential conflict between private and social incen tives. It is shown how mergers may be undertaken in order to preempt other possible, and socially more desirable, mergers. The model also throws light on the formation of research joint ventures. (C) 2001 Elsevier Science BY All rights reserved.