Merger policy, entry, and entrepreneurship
AbstractWe assess the impact of merger policy on entry and entrepreneurship. When faced with uncertainty about its prospects, and foreseeing that it may wish to leave the market should profitability prove poor, a rational entrant considers possible exit routes. Horizontal merger reduces competition post-merger which, all else being equal, lowers welfare; but merger also provides a valuable exit route. By facilitating exit and thus raising the value of entry, more lenient merger policy may stimulate entry sufficiently that welfare is increased overall. We calculate the optimal merger policy in the form of a low, but positive, profitability threshold below which merger is permitted despite the adverse impact on post-merger competition. This may be viewed as an extension of the “failing firm defence” to include ailing, low profitability firms as well as imminently failing ones. Merger policy is compared with an entry subsidy, and the implications of strategic firm behaviour for the choice of merger policy are also examined.
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Bibliographic InfoArticle provided by Elsevier in its journal European Economic Review.
Volume (Year): 57 (2013)
Issue (Month): C ()
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Web page: http://www.elsevier.com/locate/eer
Merger policy; Entry; Exit; Entrepreneurship;
Other versions of this item:
- K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
- L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
- M13 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - New Firms; Startups
- G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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