Horizontal alliances and the merger paradox

✍ Scribed by James Sawler

• Publisher: John Wiley and Sons
• Year: 2005
• Tongue: English
• Weight: 104 KB
• Volume: 26
• Category: Article
• ISSN: 0143-6570
• DOI: 10.1002/mde.1210

✦ Synopsis

Mergers and alliances are two organizational forms which allow firms to combine complementary capabilities to realize strategic goals; they are, in many cases, strategic substitutes. Managerial decision-makers, therefore, require a framework for choosing between the two strategies. This paper contributes to this decision-making process by highlighting one advantage of alliances over mergers. Specifically, while the profitability of a cost-reducing horizontal merger is diminished by the resulting expansion of non-merging competitor(s), an alliance, where partners collaborate to reduce costs but sell their product independently, enables its partners to realize the benefits of merging but avoid the problem of strengthening competitors. A model is developed which demonstrates the profitability of establishing such an alliance compared to a merger. The implications of this strategy for antitrust review are briefly discussed.