It is well known that under di¤erentiated product monopolistic competition any merger always increases the total pro…t of the merged entity. Because of this one might expect complete monopolization of a price competing industry provided that there are no (legal) barriers to acquisition (merger). In this paper we show that this is not always true. The industry may not get monopolized because the value of a fringe firm is getting higher when the concentration of the industry gets higher. This creates strategic incentives for a fringe firm to be last in the line of those who sell their businesses. Sometimes this type of incentive prevents industry monopolization.
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Paper provided by Center for Economic and Financial Research (CEFIR) in its series Working Papers with number
w0072.
Length: 47 pages Date of creation: Aug 2005 Date of revision: Handle: RePEc:cfr:cefirw:w0072
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