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Horizontal mergers and exit in declining industries

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Author Info

  • Darren Filson
  • Bunchon Songsamphant

Abstract

Previous work on exit in declining industries has neglected mergers. This paper examines a simple model that illustrates how mergers can affect the order of exit. The model also predicts which declining industries experience horizontal mergers. Mergers are more likely if (1) the inverse demand curve is steep at high levels of output and flat at low levels of output; (2) the industry declines slowly early on and rapidly later on; and (3) market concentration is high. The conditions that make mergers privately profitable also tend to make them socially optimal.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Economics Letters.

Volume (Year): 12 (2005)
Issue (Month): 2 ()
Pages: 129-132

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Handle: RePEc:taf:apeclt:v:12:y:2005:i:2:p:129-132

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References

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  1. Darren Filson & Edward Keen & Eric Fruits & Thomas E. Borcherding, . "Market Power and Cartel Formation: Theory and an Empirical Test," Claremont Colleges Working Papers 2000-31, Claremont Colleges.
  2. Mary E. Deily, 1991. "Exit Strategies and Plant-Closing Decisions: The Case of Steel," RAND Journal of Economics, The RAND Corporation, vol. 22(2), pages 250-263, Summer.
  3. King, Stephen P, 1998. "The Behaviour of Declining Industries," The Economic Record, The Economic Society of Australia, vol. 74(226), pages 217-30, September.
  4. Darren Filson, . "Product and Process Innovations in the Life Cycle of an Industry," Claremont Colleges Working Papers 2000-30, Claremont Colleges.
  5. Baden-Fuller, Charles W F, 1989. "Exit from Declining Industries and the Case of Steel Castings," Economic Journal, Royal Economic Society, vol. 99(398), pages 949-61, December.
  6. Fudenberg, Drew & Tirole, Jean, 1986. "A Theory of Exit in Duopoly," Econometrica, Econometric Society, vol. 54(4), pages 943-60, July.
  7. Raymond Deneckere & Carl Davidson, 1985. "Incentives to Form Coalitions with Bertrand Competition," RAND Journal of Economics, The RAND Corporation, vol. 16(4), pages 473-486, Winter.
  8. April Mitchell Franco & Darren Filson, 2000. "Knowledge Diffusion through Employee Mobility," Claremont Colleges Working Papers 2000-61, Claremont Colleges.
  9. Dutz, Mark A., 1989. "Horizontal mergers in declining industries : Theory and evidence," International Journal of Industrial Organization, Elsevier, vol. 7(1), pages 11-33, March.
  10. Eric J. Bartelsman & Wayne Gray, 1996. "The NBER Manufacturing Productivity Database," NBER Technical Working Papers 0205, National Bureau of Economic Research, Inc.
  11. Ghemawat, Pankaj & Nalebuff, Barry, 1990. "The Devolution of Declining Industries," The Quarterly Journal of Economics, MIT Press, vol. 105(1), pages 167-86, February.
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Cited by:
  1. Esteve-Perez, Silviano, 2005. "Exit with vertical product differentiation," International Journal of Industrial Organization, Elsevier, vol. 23(3-4), pages 227-247, April.
  2. Mathias Erlei & Jens-Peter Springmann, 2006. "Small is Successful!?," TUC Working Papers in Economics 0005, Abteilung für Volkswirtschaftslehre, Technische Universität Clausthal (Department of Economics, Technical University Clausthal).
  3. Keith Hylton, 2011. "Brown Shoe Versus the Horizontal Merger Guidelines," Review of Industrial Organization, Springer, vol. 39(1), pages 95-106, August.

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