Post-merger internal organization in multitier decentralized supply chains
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Post-merger internal organization in multitier decentralized supply chains Margarida Catala˜o-Lopes1
•
Duarte Brito2
Received: 14 December 2019 / Accepted: 21 September 2020 Ó Springer-Verlag GmbH Austria, part of Springer Nature 2020
Abstract This paper analyses the effects upon firms and consumers of horizontal mergers in a multitier decentralized supply chain with a finite number of players in each tier, when firms may opt for two different post-merger internal organization forms: multidivisional, in which separate divisions are kept, or traditional, with cost synergies. To this effect, we develop and solve a formal game theory-based Cournot model. The main results are: independently of the tier in which the merger takes place, higher synergies do not always lead to higher consumer welfare; despite the fact that the proposal of a traditional merger reveals significant cost savings consumer welfare may still decrease with the merger; traditional downstream mergers tend to be more profitable than traditional upstream ones; multidivisional mergers are always profitable. Keywords Mergers Multidivisional firms Cost savings Supply chain
JEL Classification L13 L23 L41
1 Introduction The current importance of mergers as a strategic tool is unquestionable. The impact of horizontal mergers is felt not just by merging firms, but also by rival firms in the market and by consumers. When two rival firms merge, one of the competing rivals & Margarida Catala˜o-Lopes [email protected] Duarte Brito [email protected] 1
CEG-IST, Instituto Superior Te´cnico, Universidade de Lisboa, Av. Rovisco Pais, 1, 1049-001 Lisboa, Portugal
2
DCSA, Faculdade de Cieˆncias e Tecnologia, Universidade Nova de Lisboa and CEFAGE-UE, Quinta da Torre, 2829-516 Caparica, Portugal
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is eliminated (competition effect) and the remaining one employs the production technology of the most efficient insider, or an even more efficient technology (synergy effect). In this situation there is full integration of the merging parties. However, the creation of divisions within the firm that results from the merger is an alternative possibility. Divisions are kept independent, managers are given the appropriate incentives, and the firm resulting from the merger obtains a strategic advantage over its rivals. This second possibility, which has been called in the literature a multidivisional merger, as opposed to the former one, which we call traditional, involves at least some foregone cost savings or synergies, but provides a behavioral advantage. The owners of a merged firm may thus face a trade-off between operating as a single firm (and benefit from cost savings) or operating with independent divisions. The operation of several divisions is relatively common for instance in the hotel industry, in the tobacco market, in the matches market, in the beer market, in the automobile industry, in broadcasting, in the airline industry, or in the tissue market. Many industries
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