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The Entry-Inducing Effects of Horizontal Mergers: An Exploratory Analysis

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  • Werden, Gregory J
  • Froeb, Luke M

Abstract

Antitrust law presumes that entry normally prevents or reverses anticompetitive effects from horizontal mergers. But when sunk costs associated with entry are at levels suggested by prevailing market structure, the opportunity for entry created by an anticompetitive merger plausibly is too small to induce entry, even absent Stiglerian 'barriers to entry.' This is illustrated for Cournot and Bertrand models. Significant entry also makes otherwise profitable Bertrand mergers unprofitable, assuming no efficiency gains. Consequently, the entry issue can be collapsed into the efficiency issue: if a presumably profitable merger does not generate significant efficiencies, it cannot be expected to induce entry. Copyright 1998 by Blackwell Publishing Ltd

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Journal of Industrial Economics.

Volume (Year): 46 (1998)
Issue (Month): 4 (December)
Pages: 525-43

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Handle: RePEc:bla:jindec:v:46:y:1998:i:4:p:525-43

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Citations

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Cited by:
  1. Jianjun Miao & Dirk Hackbarth, 2008. "The Timing and Returns of Mergers and Acquisitions in Oligopolistic Industries," 2008 Meeting Papers 12, Society for Economic Dynamics.
  2. Kwang Soo Cheong & Kenneth L Judd, 1997. "Mergers and Dynamic Oligopoly," Working Papers 199714, University of Hawaii at Manoa, Department of Economics.
  3. Choné, Philippe & Linnemer, Laurent, 2008. "Assessing horizontal mergers under uncertain efficiency gains," International Journal of Industrial Organization, Elsevier, vol. 26(4), pages 913-929, July.
  4. Luke Froeb & Gregory Werden, 2000. "An Introduction to the Symposium on the Use of Simulation in Applied Industrial Organization," International Journal of the Economics of Business, Taylor and Francis Journals, vol. 7(2), pages 133-137.
  5. Davidson, Carl & Mukherjee, Arijit, 2007. "Horizontal mergers with free entry," International Journal of Industrial Organization, Elsevier, vol. 25(1), pages 157-172, February.
  6. Nisvan Erkal & Daniel Piccinin, 2006. "Horizontal Mergers with Free Entry in Differentiated Oligopolies," Department of Economics - Working Papers Series 976, The University of Melbourne.
  7. Luis M. B. Cabral, 2001. "Horizontal Mergers With Free-Entry: Why Cost Efficiencies May Be a Weak Defense and Asset Sales a Poor Remedy," Working Papers 01-05, New York University, Leonard N. Stern School of Business, Department of Economics.
  8. Louis Kaplow & Carl Shapiro, 2007. "Antitrust," NBER Working Papers 12867, National Bureau of Economic Research, Inc.
  9. Ramón Faulí-Oller & Joel Sandonís, 2007. "Downstream Mergers And Entry," Working Papers. Serie AD 2007-21, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  10. Vasconcelos, Helder, 2006. "Endogenous mergers in endogenous sunk cost industries," International Journal of Industrial Organization, Elsevier, vol. 24(2), pages 227-250, March.
  11. Claudio Agostini, 2007. "Hacia una Política de Evaluación de Fusiones Horizontales," ILADES-Georgetown University Working Papers inv185, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines.
  12. Ralph Siebert & Klaus Gugler, 2004. "Market Power versus Efficiency Effects of Mergers and Research Joint Ventures: Evidence from the Semiconductor Industry," NBER Working Papers 10323, National Bureau of Economic Research, Inc.
  13. M. Martin Boyer & Charles M. Nyce, 2002. "Banks as Insurance Referral Agents? The Convergence of Financial Services: Evidence from the Title Insurance Industry," CIRANO Working Papers 2002s-78, CIRANO.
  14. Jerome Foncel & Marc Ivaldi & Jrisy Motis, 2008. "An Econometric Workbench for Comparing the Substantive and Dominance Tests in Horizontal Merger Analysis," Working Papers 0833, University of Crete, Department of Economics.
  15. Hüschelrath, Kai & Müller, Kathrin, 2012. "Market power, efficiencies, and entry: Evidence from an airline merger," ZEW Discussion Papers 12-070, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  16. Innes, Robert, 2008. "Entry for merger with flexible manufacturing: Implications for competition policy," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 266-287, January.

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