<p>Merger paradox from industrial organization: I believe a fairly good overview is here:  Garcia, F, Paz y Miño, JM, Torrens, G. The merger paradox, collusion, and competition policy. J Public Econ Theory. 2020; 22: 2051– 2081. <a href="https://doi.org/10.1111/jpet.12448" rel="noreferrer">https://doi.org/10.1111/jpet.12448</a>.</p>
<p>You can find a fair deal about it here as well: R. Rothschild, John S. Heywood, Kristen Monaco, Spatial price discrimination and the merger paradox, Regional Science and Urban Economics, Volume 30, Issue 5,
2000, Pages 491-506 <a href="https://doi.org/10.1016/S0166-0462(00)00044-2" rel="noreferrer">https://doi.org/10.1016/S0166-0462(00)00044-2</a></p>
<p>The general overview of this paradox is that it is unclear, under traditional models, why one firm would bother to purchase another. If they do so, the only point is to cut total overall production. But the sale price of any such firm will (under most conditions) be prohibitively expensive. Furthermore, the firms that are excluded from this merger benefit from reduced production - and they didn't have to bother to buy anyone. Some solutions include assuming extremely concave production functions, sticky/immobile customers distributed along some preference space, and others.</p>
<p>Previously, IO had an unsolved mystery of how firms chose to enter sequentially in spatially price-discriminating markets for the n-firm case in linear markets and circular markets. I know circular markets have been solved, and I think linear markets have also been solved recently.</p>

CC BY-SA 4.0
2021-12-03T22:26:07.293Z
2021-12-04T01:17:44.763Z
2021-12-04T01:17:44.763Z
RegressForward
<p>What are some (unresolved) paradoxes or puzzles in financial economics?</p>
<p>I am looking for paradoxes or puzzles like for example:</p>
<ul>
<li>The equity premium puzzle (Mehra &amp; Prescott, 1985).</li>
<li>Siegel's paradox (Siegel, 1972).</li>
<li>Dividend puzzle (Black 1976)</li>
</ul>
<p>I am especially looking for some that were never resolved or only partially so, and I would also be interested in some reference that describes/identifies the puzzle or paradox.</p>
<p>PS: there is <a href="https://economics.stackexchange.com/questions/18376/unexplained-economic-puzzles?rq=1">thread on paradoxes in economics</a>, but I am only interested in the subfield of financial economics.</p>

CC BY-SA 4.0
2021-12-03T21:01:36.063Z
There are certainly a lot of papers providing explanations for the equity premium puzzle. What does count as resolved?
Michael Greinecker
CC BY-SA 4.0
2021-12-03T21:51:58.957Z
@MichaelGreinecker oh sorry I wasn’t clear, for sure equity premium puzzle has lot of resolutions, I was listing it as an example of the kind of puzzles I am looking for
1muflon1
CC BY-SA 4.0
2021-12-03T22:26:45.467Z
Merger paradox, https://onlinelibrary.wiley.com/doi/abs/10.1111/jpet.12448 is a fairly good overview.
RegressForward
CC BY-SA 4.0
2021-12-03T23:17:29.287Z
@RegressForward thanks consider posting it as an answer so you can collect some internet points ;)
1muflon1
<reference-request><financial-economics>
Unresolved paradoxes or puzzles in financial economics
1muflon1
# Unresolved paradoxes or puzzles in financial economics

(Asked by: username_0 on 2021-12-03)

What are some (unresolved) paradoxes or puzzles in financial economics?

I am looking for paradoxes or puzzles like for example:

* The equity premium puzzle (Mehra & Prescott, 1985).
* Siegel's paradox (Siegel, 1972).
* Dividend puzzle (Black 1976)

I am especially looking for some that were never resolved or only partially so, and I would also be interested in some reference that describes/identifies the puzzle or paradox.

PS: there is [thread on paradoxes in economics](https://economics.stackexchange.com/questions/18376/unexplained-economic-puzzles?rq=1), but I am only interested in the subfield of financial economics.

**Tags:** reference-request, financial-economics
> **Comments:**
> **username_1**: There are certainly a lot of papers providing explanations for the equity premium puzzle. What does count as resolved?  
> **username_0**: @MichaelGreinecker oh sorry I wasn’t clear, for sure equity premium puzzle has lot of resolutions, I was listing it as an example of the kind of puzzles I am looking for  
> **username_2**: Merger paradox, https://onlinelibrary.wiley.com/doi/abs/10.1111/jpet.12448 is a fairly good overview.  
> **username_0**: @RegressForward thanks consider posting it as an answer so you can collect some internet points ;)  

---

## 1 answers

### Answer by username_2 on 2021-12-03. Score: 5 | Accepted answer

Merger paradox from industrial organization: I believe a fairly good overview is here: Garcia, F, Paz y Miño, JM, Torrens, G. The merger paradox, collusion, and competition policy. J Public Econ Theory. 2020; 22: 2051– 2081. <https://doi.org/10.1111/jpet.12448>.

You can find a fair deal about it here as well: R. Rothschild, John S. Heywood, Kristen Monaco, Spatial price discrimination and the merger paradox, Regional Science and Urban Economics, Volume 30, Issue 5,
2000, Pages 491-506 <https://doi.org/10.1016/S0166-0462(00)00044-2>

The general overview of this paradox is that it is unclear, under traditional models, why one firm would bother to purchase another. If they do so, the only point is to cut total overall production. But the sale price of any such firm will (under most conditions) be prohibitively expensive. Furthermore, the firms that are excluded from this merger benefit from reduced production - and they didn't have to bother to buy anyone. Some solutions include assuming extremely concave production functions, sticky/immobile customers distributed along some preference space, and others.

Previously, IO had an unsolved mystery of how firms chose to enter sequentially in spatially price-discriminating markets for the n-firm case in linear markets and circular markets. I know circular markets have been solved, and I think linear markets have also been solved recently.


---

