Merger Paradox In Europe

Merger Paradox is the realization that the insider firms in a Cournot market need to command a large share of pre-merger market for a merger to be profitable, otherwise the insider firm will fail to obtain post-merger profits. Unprofitable mergers are not expected in the database. However, the Agency Problem provides a counter example. This research will analyze the occurrence of the Merger Paradox in Europe between 1990 and 2000 using the difference in stock prices before and after the merger. After regressing on the Cournot characteristics and industries, no significant relation between the characteristics and the industry could be found. The distribution of the differences in stock prices between the different Cournot characteristics does not differ in the data. The Merger Paradox does not seem apparent in the data.