Friday, November 9, 2012

Priceline and Kayak to Merge

Priceline.com has recently announced they are acquiring Kayak.  This is a good example of a horizontal merger, in the sense that the majority of both firms business is in the same market - re-selling airline seats and hotel rooms.  In economics this is referred to as a horizontal merger.

As stated recently in class, their is a paradox in economic theory regarding horizontal mergers, and the paradox is that if there is a horizontal merger that does not result in a monopoly, that theoretically, it can be difficult to show that for equal sized firms the merging firms post-merger profits will be greater than the aggregate of the firms profits if they were not to merge.

Time will tell whether this merger will lead to higher profits for the combined organization, but this merger seems a good candidate for keeping the horizontal merger paradox in mind.

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