Information-sharing implications of horizontal mergers

We analyze the effects of uncertainty and private information on horizontal mergers. Firms face uncertain demands or costs and receive private signals. They may decide to merge, sharing their private information. If the uncertainty parameters are independent and the signals are perfect, uncertainty generates an informational advantage to the merging firms, increasing merger incentives and decreasing free-riding effects. From the normative point of view, mergers are socially less harmful than in deterministic markets and may even be welfare enhancing. If the signals are not privately but publicly observed, uncertainty does not necessarily give more incentives to merge, and mergers are not always less socially harmful than in deterministic markets.