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

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  • Gautam Gowrisankaran

    ()
    (Washington University in St. Louis, NBER)

  • Thomas J. Holmes

    ()
    (University of Minnesota, Federal Reserve Bank of Minneapolis, NBER)

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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Bibliographic 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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Cited by:
  1. Ken-Ichi Shimomura & Jacques-François Thisse, 2009. "Competition Among the Big and the Small," CREA Discussion Paper Series, Center for Research in Economic Analysis, University of Luxembourg 09-18, Center for Research in Economic Analysis, University of Luxembourg.
  2. Ray Chaudhuri, A., 2014. "Acquisitions by Multinationals and Trade Liberalization," Discussion Paper, Tilburg University, Center for Economic Research 2014-006, Tilburg University, Center for Economic Research.
  3. Dirk Hackbarth & Jianjun Maio, 2007. "The Dynamics of Mergers and Acquisitions in Oligopolistic Industries," Boston University - Department of Economics - Working Papers Series, Boston University - Department of Economics WP2007-017, Boston University - Department of Economics.
  4. 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.
  5. Inés Macho-Stadler & David Pérez-Castrillo & Nicolás Porteiro, 2006. "Sequential Formation of Coalitions Through Bilateral Agreements in a Cournot Setting," International Journal of Game Theory, Springer, Springer, vol. 34(2), pages 207-228, August.
  6. Moez Souissi & Pierre Lasserre, 2007. "It Takes Two to Tango. La fusion : exercice de deux options réelles," Économie et Prévision, Programme National Persée, Programme National Persée, vol. 178(2), pages 51-65.
  7. Ray Chaudhuri, A., 2008. "A Dynamic Model of Endogenous Mergers and Trade Liberalization," Discussion Paper, Tilburg University, Center for Economic Research 2008-22, Tilburg University, Center for Economic Research.
  8. Marco Pagnozzi & Antonio Rosato, 2014. "Entry by Takeover: Auctions vs. Negotiations," CSEF Working Papers, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy 353, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  9. Pedro Pita Barros & Diana Bonfim & Moshe Kim & Nuno C. Martins, 2010. "Counterfactual Analysis of Bank Mergers," Working Papers, Banco de Portugal, Economics and Research Department w201005, Banco de Portugal, Economics and Research Department.
  10. Corbae, Dean & D'Erasmo, Pablo, 2014. "Capital requirements in a quantitative model of banking industry dynamics," Working Papers 14-13, Federal Reserve Bank of Philadelphia.
  11. Egger, Peter & Hahn, Franz R., 2010. "Endogenous bank mergers and their impact on banking performance: Some evidence from Austria," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 28(2), pages 155-166, March.
  12. Ron Borkovsky & Ulrich Doraszelski & Yaroslav Kryukov, 2012. "A dynamic quality ladder model with entry and exit: Exploring the equilibrium correspondence using the homotopy method," Quantitative Marketing and Economics, Springer, Springer, vol. 10(2), pages 197-229, June.

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