Mergers and acquisitions between risk-averse parties

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31 Scopus citations

Abstract

This paper evaluates mergers and acquisitions (M&A) in a supply chain involving risk-averse parties. In contrast to prior literature, the analysis presented herein suggests that, because of risk considerations, different types of M&A can yield different outcomes. Specifically, we distinguish among three types of M&A arrangements—merger, forward acquisition and backward acquisition—and compare each arrangement to a decentralized supply chain (i.e., before M&A). We further analyze an application of M&A in the software industry. The expected utility gained by each party is examined under each type of M&A, and the effect of each type of M&A on the consumer is evaluated in terms of price and quality of the software product. We find that a merger yields higher expected utility to the parties and leads to higher product quality compared with forward and backward acquisitions; however, it may yield a higher price for the consumer. Moreover, we show that a decentralized supply chain can be more beneficial for the parties than a centralized supply chain (formed by acquisition).

Original languageEnglish
Pages (from-to)926-934
Number of pages9
JournalEuropean Journal of Operational Research
Volume259
Issue number3
DOIs
StatePublished - 16 Jun 2017

Bibliographical note

Publisher Copyright:
© 2016 Elsevier B.V.

Keywords

  • Game theory
  • Mean-variance criterion
  • Mergers and acquisitions
  • Risk aversion
  • Supply chain management

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