“Merger Waves: A Model of Endogenous Mergers” by Wen ZHOU
Authors:
Wen ZHOU
Hong Kong University of Science and TechnologyLarry D. QIU
Hong Kong University of Science and Technology
We develop a model of endogenous mergers to study their dynamic process. Firms choose whether, when, and with whom to merge. Two necessary conditions are identified for mergers to occur: firm heterogeneity and negative demand shocks. We show that mergers are strategic complements and therefore tend to occur in waves. Moreover, some mergers occur for strategic reasons in order to precipitate further mergers.
