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

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Author Info
Werden, Gregory J
Froeb, Luke M

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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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Article provided by Blackwell Publishing 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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  1. Robin Mason & Helen Weeds, 2007. "Merger Policy, Entry, and Entrepreneurship," Economics Discussion Papers 634, University of Essex, Department of Economics. [Downloadable!]
  2. Nisvan Erkal & Daniel Piccinin, 2006. "Horizontal Mergers with Free Entry in Differentiated Oligopolies," Department of Economics - Working Papers Series 976, The University of Melbourne. [Downloadable!]
  3. 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. [Downloadable!]
    Other versions:
  4. Ramón Faulí-Oller & Joel Sandonís, 2007. "Downstream Mergers And Entry," Working Papers. Serie AD 2007-21, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie). [Downloadable!]
  5. 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. [Downloadable!]
  6. Philippe Choné & Laurent Linnemer, 2006. "Assessing Horizontal Mergers under Uncertain Efficiency Gains," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
    Other versions:
  7. Claudio Agostini, 2007. "Hacia una Política de Evaluación de Fusiones Horizontales," ILADES-Georgetown University Working Papers inv185, Ilades-Georgetown University, School of Economics and Bussines. [Downloadable!]
  8. 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. [Downloadable!] (restricted)
    Other versions:
  9. Luke M. Froeb, Gregory J. 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, July. [Downloadable!] (restricted)
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