We analyze horizontal mergers in Cournot oligopoly. We find general conditions under which such mergers raise price, and show that any merger not creating synergies raises price. We develop a procedure for analyzing the effect of a merger on rivals and consumers and thus provide sufficient conditions for profitable mergers to raise welfare. We show that traditional merger analysis can be misleading in its use of the Herfindahl Index. Our analysis stresses the output responses of large firms not participating in the merger.

We argue that although decentralization has advantages in finding low-cost solutions, these advantages are accompanied by coordination problems, which lead to delay or duplication of effort or both. Consequently, decentralization is desirable when there is little urgency or a great deal of private information, but it is strictly undesirable in urgent problems when private information is less important. We also examine the effect of large numbers and find that coordination problems disappear in the limit if distributions are common knowledge.

The authors argue that, although decentralization has advantages in finding low-cost solutions, these advantages are accompanied by coordination problems, which lead to delay or duplication of effort or both. Consequently, decentralization is desirable when there is little urgency or a great deal of private information, but it is strictly undesirable in urgent problems when private information is less important. The authors also examine the effect of large numbers and find that coordination problems disappear in the limit if distributions are common knowledge. Copyright 1990 by University of Chicago Press.