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Monopolisation and Industry Structure

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  • Volker Nocke

    (University of Oxford)

Abstract

The aim of this paper is to provide empirically testable predictions regarding the relationship between market size and concentration. In the first part of the paper, a model of endogenous horizontal mergers is investigated. It is shown that concentrated outcomes can not be supported in a free entry equilibrium in large exogenous sunk cost industries: the upper bound to concentration tends to zero as market size (relative to setup costs) tends to infinity. In contrast, arbitrarily concentrated outcomes may be sustained in endogenous sunk cost industries, no matter how large the market, and even in the absence of mergers; that is, the upper bound to concentration does not decrease with market size. The second part of the paper formalises Stigler's idea that mergers may induce new entry. Using a recent equilibrium concept, which is defined not in the space of strategies, but in the space of observable outcomes, it is shown that the above predictions do not depend on the details of the extensive form of the game, even allowing for side payments between firms and endogenous product choice. The results complement those of Sutton (1991) on the stability of fragmented outcomes.

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Bibliographic Info

Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 0429.

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Date of creation: 01 Aug 2000
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Handle: RePEc:ecm:wc2000:0429

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  1. Hart, Sergiu & Kurz, Mordecai, 1983. "Endogenous Formation of Coalitions," Econometrica, Econometric Society, Econometric Society, vol. 51(4), pages 1047-64, July.
  2. Champsaur, Paul & Rochet, Jean-Charles, 1989. "Multiproduct Duopolists," Econometrica, Econometric Society, Econometric Society, vol. 57(3), pages 533-57, May.
  3. Robinson, William T & Chiang, Jeongwen, 1996. "Are Sutton's Predictions Robust?: Empirical Insights into Advertising, R&D, and Concentration," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 44(4), pages 389-408, December.
  4. Berry, Steven T, 1992. "Estimation of a Model of Entry in the Airline Industry," Econometrica, Econometric Society, Econometric Society, vol. 60(4), pages 889-917, July.
  5. Compte, Olivier & Jenny, Frederic & Rey, Patrick, 2002. "Capacity constraints, mergers and collusion," European Economic Review, Elsevier, Elsevier, vol. 46(1), pages 1-29, January.
  6. Bresnahan, Timothy F & Reiss, Peter C, 1990. "Entry in Monopoly Markets," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 57(4), pages 531-53, October.
  7. Perry, Martin K & Porter, Robert H, 1985. "Oligopoly and the Incentive for Horizontal Merger," American Economic Review, American Economic Association, American Economic Association, vol. 75(1), pages 219-27, March.
  8. Kamien, Morton I & Zang, Israel, 1993. "Monopolization by Sequential Acquisition," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 9(2), pages 205-29, October.
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Cited by:
  1. Volker Nocke, 2003. "A Gap for Me: Entrepreneurs and Entry," PIER Working Paper Archive 05-026, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 29 Sep 2005.
  2. J Peter Neary, 2001. "Foreign Competition and Wage Inequality," Working Papers, School Of Economics, University College Dublin 200102, School Of Economics, University College Dublin.
  3. Volker Nocke & Stephen Yeaple, 2004. "Mergers and the Composition of International Commerce," NBER Working Papers 10405, National Bureau of Economic Research, Inc.
  4. Vasconcelos, Helder, 2006. "Endogenous mergers in endogenous sunk cost industries," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 24(2), pages 227-250, March.

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