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Experiments on horizontal mergers: Does size matter?

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  • Beckman, Steven R.
  • DeAngelo, Gregory
  • James Smith, W.

Abstract

Current Department of Justice merger guidelines assume that merging the capacities of two firms will translate into an equivalent increase in market shares. Size matters. Economic theory asserts size is determined by marginal revenue and marginal cost not capacity. Size does not matter. In this paper we run horizontal merger experiments and find that the firms tend to share monopoly profits regardless of the size of the firms.

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Bibliographic Info

Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 117 (2012)
Issue (Month): 3 ()
Pages: 537-539

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Handle: RePEc:eee:ecolet:v:117:y:2012:i:3:p:537-539

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Web page: http://www.elsevier.com/locate/ecolet

Related research

Keywords: Market share; Profits; Firm size; Mergers;

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  1. Farrell, Joseph & Shapiro, Carl, 1990. "Horizontal Mergers: An Equilibrium Analysis," American Economic Review, American Economic Association, vol. 80(1), pages 107-26, March.
  2. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
  3. Huck, Steffen & Normann, Hans-Theo & Oechssler, Jorg, 2004. "Two are few and four are many: number effects in experimental oligopolies," Journal of Economic Behavior & Organization, Elsevier, vol. 53(4), pages 435-446, April.
  4. Salant, Stephen W & Switzer, Sheldon & Reynolds, Robert J, 1983. "Losses from Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 98(2), pages 185-99, May.
  5. Charness, Gary B & Rabin, Matthew, 2004. "Expressed Preferences and Behavior in Experimental Games," University of California at Santa Barbara, Economics Working Paper Series qt153590pb, Department of Economics, UC Santa Barbara.
  6. Matthew Rabin., 1992. "Incorporating Fairness into Game Theory and Economics," Economics Working Papers 92-199, University of California at Berkeley.
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