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Mergers and the Evolution of Industry Concentration: Results from the Dominant-Firm Model

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Author Info
Gautam Gowrisankaran () (Washington University in St. Louis, NBER)
Thomas J. Holmes () (University of Minnesota, Federal Reserve Bank of Minneapolis, NBER)

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Abstract

To what extent will an industry in which mergers are feasible tend toward monopoly? We analyze this question using a dynamic dominant-firm model with rational agents, endogenous mergers, and constant returns to scale production. We find that long-run industry concentration depends upon the initial concentration. A monopolistic industry will remain monopolized and a perfectly competitive industry will remain perfectly competitive. For intermediate concentration levels, the dominant firm may acquire or sell capital, depending on its ability to commit to future behavior. Industry evolution also depends on the elasticities of demand and supply and the discount factor.

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Publisher Info
Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 35 (2004)
Issue (Month): 3 (Autumn)
Pages: 561-582
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Handle: RePEc:rje:randje:v:35:y:2004:3:p:561-582

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  1. Gary Gorton & Matthias Kahl & Richard Rosen, 2005. "Eat or Be Eaten: A Theory of Mergers and Merger Waves," NBER Working Papers 11364, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Norbäck, Pehr-Johan & Persson, Lars, 2007. "Globalization and Profitability of Cross-border Mergers & Acquisitions," CEPR Discussion Papers 6102, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  3. Pehr-Johan Norbäck & Lars Persson, 2008. "Globalization and profitability of cross-border mergers and acquisitions," Economic Theory, Springer, vol. 35(2), pages 241-266, May. [Downloadable!] (restricted)
  4. Ray Chaudhuri, A., 2008. "A Dynamic Model of Endogenous Mergers and Trade Liberalization," Discussion Paper 2008-005, Tilburg University, Tilburg Law and Economic Center. [Downloadable!]
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  5. Granier, L., 2005. "Strategic Monopolization: Kamien and Zang Revisited," Cahiers du LASER (LASER Working Papers) 2005.14, LASER (Laboratoire de Science Economique de Richter), Faculty of Economics, University of Montpellier 1. [Downloadable!]
  6. Inés Macho-Stadler & David Pérez-Castrillo & Nicolás Porteiro, 2006. "Sequential Formation of Coalitions through Bilateral Agreements in a Cournot Setting," Working Papers 06.01, Universidad Pablo de Olavide, Department of Economics. [Downloadable!]
    Other versions:
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