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The effects of mergers with dynamic capacity accumulation

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  • Chen, Jiawei

Abstract

The U.S. antitrust law enforcement agencies often base their assessment of mergers on a model with asymmetric costs. However, in many near-homogeneous product industries there is evidence that cost differences are minor and capacity differences seem a more reasonable explanation of firm heterogeneity. Based on simulations from a dynamic model of capacity accumulation, I find that mergers are welfare-reducing and that their long-run effects are worse than their short-run effects. If instead the simulated data is fit to an asymmetric costs model, the long-run welfare-reducing effects of mergers will be systematically underestimated, which can give rise to misguided antitrust policies.

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Bibliographic Info

Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 27 (2009)
Issue (Month): 1 (January)
Pages: 92-109

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Handle: RePEc:eee:indorg:v:27:y:2009:i:1:p:92-109

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Web page: http://www.elsevier.com/locate/inca/505551

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Keywords: Merger Effects Dynamic Oligopoly Capacity Cost Misspecification Simulation;

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References

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Citations

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Cited by:
  1. Jiawei Chen & Ulrich Doraszelski & Joseph E. Harrington, Jr., 2009. "Avoiding market dominance: product compatibility in markets with network effects," RAND Journal of Economics, RAND Corporation, vol. 40(3), pages 455-485.
  2. Villeneuve, Bertrand & Zhang, Vanessa Yanhua, 2013. "Industry Restructuring: A Case for Affirmative Action," Economics Papers from University Paris Dauphine 123456789/10217, Paris Dauphine University.
  3. Wilson, Nathan E., 2012. "Uncertain regulatory timing and market dynamics," International Journal of Industrial Organization, Elsevier, vol. 30(1), pages 102-115.
  4. Villeneuve, Bertrand & Zhang, Vanessa Yanhua, 2008. "A Case for Affirmative Action in Competition Policy," MPRA Paper 9700, University Library of Munich, Germany.

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