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Horizontal Mergers and Exit in Declining Industries

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  • Darren Filson

    (Claremont Graduate University)

  • Bunchon Songsamphant

    (Claremont Graduate University)

Abstract

Previous work on exit in declining industries has neglected mergers. We examine a simple model that predicts which declining industries experience horizontal mergers. Mergers are more likely if 1) market concentration is high; 2) the inverse demand curve is steep at high levels of output and flat at low levels of output; and 3) the industry declines slowly early on and rapidly later on. The conditions that make mergers privately profitable also tend to make them socially optimal. We test the model using U.S. manufacturing industries that declined during 1975-1995 and find some empirical support.

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Paper provided by Claremont Colleges in its series Claremont Colleges Working Papers with number 2001-13.

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Handle: RePEc:clm:clmeco:2001-13

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Keywords: takeover; restructuring; consolidation; industry dynamics; failing industries;

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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, Claremont Colleges 2000-31, Claremont Colleges.
  2. Ghemawat, Pankaj & Nalebuff, Barry, 1990. "The Devolution of Declining Industries," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 105(1), pages 167-86, February.
  3. April Mitchell Franco & Darren Filson, 2000. "Knowledge diffusion through employee mobility," Staff Report, Federal Reserve Bank of Minneapolis 272, Federal Reserve Bank of Minneapolis.
  4. King, Stephen P, 1998. "The Behaviour of Declining Industries," The Economic Record, The Economic Society of Australia, vol. 74(226), pages 217-30, September.
  5. Eric J. Bartelsman & Wayne Gray, 1996. "The NBER Manufacturing Productivity Database," NBER Technical Working Papers 0205, National Bureau of Economic Research, Inc.
  6. Fudenberg, Drew & Tirole, Jean, 1986. "A Theory of Exit in Duopoly," Econometrica, Econometric Society, Econometric Society, vol. 54(4), pages 943-60, July.
  7. Darren Filson, . "Product and Process Innovations in the Life Cycle of an Industry," Claremont Colleges Working Papers, Claremont Colleges 2000-30, Claremont Colleges.
  8. 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.
  9. Baden-Fuller, Charles W F, 1989. "Exit from Declining Industries and the Case of Steel Castings," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 99(398), pages 949-61, December.
  10. 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.
  11. repec:fth:stanho:e-90-20 is not listed on IDEAS
  12. Dutz, Mark A., 1989. "Horizontal mergers in declining industries : Theory and evidence," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 7(1), pages 11-33, March.
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Cited by:
  1. 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).
  2. Esteve-Perez, Silviano, 2005. "Exit with vertical product differentiation," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 23(3-4), pages 227-247, April.
  3. Keith Hylton, 2011. "Brown Shoe Versus the Horizontal Merger Guidelines," Review of Industrial Organization, Springer, Springer, vol. 39(1), pages 95-106, August.

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