Leading and merging: convex costs, Stackelberg, and the merger paradox.(evlauating acquisitions and mergers impact on business) From: Southern Economic Journal | Date: January 1, 2008| Author: | COPYRIGHT 2008 Southern Economic Association. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan.  All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information) Copyright information

This paper examines the consequences of a Stackelberg leader merging with followers when costs are convex. Such mergers are always profitable for the participants, and the followers often do better merging than remaining excluded rivals. This resolution of the merger paradox cannot be generated either by Stackelberg leadership without convex costs or by convex costs without leadership. In addition, with convex costs, a merger with the leader can actually harm excluded rivals (suggesting why they might object to the merger) and increase social welfare.

JEL Classification: L12, L13

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