Introduction

In Cournot markets bilateral mergers can harm the merging firms. Postmerger profits of the merged firm may be smaller than the joint profits of the two merging firms prior to the merger. This is known as the “merger paradox,” first pointed out by Salant, Switzer and Reynolds (1983). In ordinary Cournot markets the paradox always holds with linear demand and cost – but not so in Stackelberg markets. Recognized first by Huck, Konrad and Müller (2001), mergers in Stackelberg markets can be profitable despite the absence of “synergy effects.” This illuminates the importance of the underlying market structure and the role of strategic power for a comprehensive merger analysis. More specifically, Huck, Konrad and Müller analyze a framework with a number of Stackelberg leaders (all of whom decide simultaneously) and a number of Stackelberg followers (who also decide simultaneously, knowing the total output of all Stackelberg leaders) and show that a merger between two different firms, i.e., a merger between a Stackelberg leader and a Stackelberg follower, is always profitable while a merger between two equal firms is only profitable if there are exactly two of them prior to the merger.