Three Essays on the Organisation of Firms

Abstract

This thesis examines the organisation of firms under various circumstances Endogenous mergers in an international context In a two country model where firms vary in their production efficiency, amodel of endogenousmergers is developed to examine equilibriummerger configurations and their welfare implications. In autarky, it is found that profitable mergers are welfare decreasing. On the other hand, in the presence of international trade in goods, domestic mergers increase welfare in a country as long as the country is not too large or the country has all the most efficient firms. Cross-border mergers result in the two most efficient firms acquiring all other firms and only increase welfare in the relatively small country. Mergers in a mixed oligopoly Potential mergers among a high cost public firm and two low cost private firms are examined. Mergers can either involve two firms merging with a share of ownership or one firmpurchasing the other through a lumpsum payment. It is shown that two private firms having the same costs do not merge, regardless of the merger type. However, a potential merger between a public and a private firm is possible depending on the marginal cost of the merged firm and the cost difference between the public and private firm. The role of intermediaries in the choice between outsourcing and ver- tical integration Within an incomplete contracts framework, this chapter examines how firms choose to organise their production – to internally produce the intermediate inputs through vertical integration, or to engage in arm’s-length viii transactions either directly with the input suppliers or through intermediary firms. Themodel suggests that the firm’s choice depends on the relative intensity of headquarter services and intermediate inputs in the final good, as well as the elasticity ofmarket demand for the final good. In particular, it is found that an intermediary firm is used when the final-good production is very intermediate-input intensive and the final-goods market demand is relatively elastic.