The effects of mergers with dynamic capacity accumulation
AbstractThe 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 InfoArticle provided by Elsevier in its journal International Journal of Industrial Organization.
Volume (Year): 27 (2009)
Issue (Month): 1 (January)
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Web page: http://www.elsevier.com/locate/inca/505551
Merger Effects Dynamic Oligopoly Capacity Cost Misspecification Simulation;
Other versions of this item:
- Jiawei Chen, 2006. "The Effects of Mergers with Dynamic Capacity Accumulation," Working Papers 060701, University of California-Irvine, Department of Economics.
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
- D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
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