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Mergers and Dynamic Oligopoly

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  • Kwang-Soo Cheong

    (University of Hawaii at Manoa)

Abstract

Static oligopoly theories disagree on whether mergers are profitable. The Cournot model says that many potential mergers would be unprofitable whereas the Bertrand model says that all mergers are profitable. We show that, for economically sensible parameter values, mergers are profitable for merging firms when firms choose both price and output, using inventories to absorb differences between output and sales. Furthermore, substantial cost advantages are necessary for a merger to benefit consumers. The merger predictions of our dynamic model are most similarto predictions of static Bertrand analyses of differentiated products even though our model often behaves like the Cournot model in the long run.
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Suggested Citation

  • Kwang-Soo Cheong, "undated". "Mergers and Dynamic Oligopoly," Computing in Economics and Finance 1997 126, Society for Computational Economics.
    • Handle: RePEc:sce:scecf7:126
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    Cited by:

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    2. Doraszelski, Ulrich & Pakes, Ariel, 2007. "A Framework for Applied Dynamic Analysis in IO," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 30, pages 1887-1966, Elsevier.
    3. Ben Mermelstein & Volker Nocke & Mark A. Satterthwaite & Michael D. Whinston, 2020. "Internal versus External Growth in Industries with Scale Economies: A Computational Model of Optimal Merger Policy," Journal of Political Economy, University of Chicago Press, vol. 128(1), pages 301-341.
    4. Ray Chaudhuri, A., 2008. "A Dynamic Model of Endogenous Mergers and Trade Liberalization," Other publications TiSEM c5b9dd83-55cf-4bc9-9a58-f, Tilburg University, School of Economics and Management.
    5. Charles Romeo, 2007. "A Gibbs sampler for mixed logit analysis of differentiated product markets using aggregate data," Computational Economics, Springer;Society for Computational Economics, vol. 29(1), pages 33-68, February.
    6. Xavier Vives, 2009. "Strategic complementarity in multi-stage games," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 40(1), pages 151-171, July.
    7. Chen, Jiawei, 2009. "The effects of mergers with dynamic capacity accumulation," International Journal of Industrial Organization, Elsevier, vol. 27(1), pages 92-109, January.
    8. Gautam Gowrisankaran & Thomas J. Holmes, 2000. "Do mergers lead to monopoly in the long run? Results from the dominant firm model," Staff Report 264, Federal Reserve Bank of Minneapolis.

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