Anticompetitive mergers benefit competitors more than the merging firms. We show that such externalities reduce firms' incentives to merge (a holdup mechanism). Firms delay merger proposals, thereby foregoing valuable profits and hoping other firms will merge instead - a war of attrition. The final result, however, is an overly concentrated market. We also demonstrate a surprising intertemporal link: Merger incentives may be reduced by the prospect of additional profitable mergers in the future. Merger control may help protect competition. Holdup and intertemporal links make policy design more difficult, however. Even reasonable policies may be worse than not controlling mergers at all.
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Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number
541.
Length: 40 pages Date of creation: 14 Dec 2000 Date of revision: Handle: RePEc:hhs:iuiwop:0541
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Find related papers by JEL classification: C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
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