Assessing the Consequences of a Horizontal Merger and its Remedies in a Dynamic Environment

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Assessing the Consequences of a Horizontal Merger and its Remedies in a Dynamic Environment

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Satoshi Myojo (National Institute of Science and Technology Policy)
Hiroshi Ohashi (Faculty of Economics, University of Tokyo)

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Hiroshi Ohashi

Abstract

This paper estimates a dynamic oligopoly model to assess the economic consequences of a horizontal merger that took place in 1970 to create the second largest global producer of steel. The paper solves a Markov perfect Nash equilibrium for the model and simulates the welfare effects of the horizontal merger. Estimates reveal that the merger enhanced the production efficiency of the merging party by a magnitude of 4.1 %, while the exercise of market power was restrained primarily by the presence of fringe competitors. Our simulation result also indicates that structural remedies endorsed by the competition authority failed to promote competition. model.

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Paper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-609.

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Length: 42pages
Date of creation: Jan 2009
Date of revision:
Handle: RePEc:tky:fseres:2009cf609

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This paper has been announced in the following NEP Reports:

NEP-ALL-2009-03-14 (All new papers)
NEP-BEC-2009-03-14 (Business Economics)
NEP-CMP-2009-03-14 (Computational Economics)
NEP-COM-2009-03-14 (Industrial Competition)
NEP-MIC-2009-03-14 (Microeconomics)
NEP-REG-2009-03-14 (Regulation)

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Yamawaki, Hideki, 1984. "Market structure, capacity expansion, and pricing : A model applied to the Japanese iron and steel industry," International Journal of Industrial Organization, Elsevier, vol. 2(1), pages 29-62, March. [Downloadable!] (restricted)
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Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, vol. 64(6), pages 1263-97, November. [Downloadable!] (restricted)
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Patrick Bajari & C. Lanier Benkard & Jonathan Levin, 2007. "Estimating Dynamic Models of Imperfect Competition," Econometrica, Econometric Society, vol. 75(5), pages 1331-1370, 09. [Downloadable!] (restricted)
Other versions:
- Jonathan Levin (Stanford University) & Pat Bajari & Lanier Benkard, 2004. "Estimating Dynamic Models of Imperfect Competition," Econometric Society 2004 North American Winter Meetings 627, Econometric Society.
- Bajari, Patrick & Benkard, C. Lanier & Levin, Jonathan, 2007. "Estimating Dynamic Models of Imperfect Competition," Research Papers 1852r1, Stanford University, Graduate School of Business. [Downloadable!]
- J. Levin & P. Bajari, 2004. "Estimating Dynamic Models of Imperfect Competition," 2004 Meeting Papers 579, Society for Economic Dynamics. [Downloadable!]
- Patrick Bajari & C. Lanier Benkard & Jonathan Levin, 2004. "Estimating Dynamic Models of Imperfect Competition," NBER Working Papers 10450, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Farrell, Joseph & Shapiro, Carl, 1990. "Horizontal Mergers: An Equilibrium Analysis," American Economic Review, American Economic Association, vol. 80(1), pages 107-26, March. [Downloadable!] (restricted)
Other versions:
- Joseph Farrell and Carl Shapiro., 1988. "Horizontal Mergers: An Equilibrium Analysis," Economics Working Papers 8880, University of California at Berkeley.
- Farrell, J. & Shapiro, C., 1989. "Horizontal Mergers: An Equilibrium Analysis," Papers e-89-3, Stanford - Hoover Institution.
- Farrell, J. & Shapiro, C., 1988. "Horizontal Mergers: An Equilibrium Analysis," Papers 17, Princeton, Woodrow Wilson School - Discussion Paper.
Compte, Olivier & Jenny, Frederic & Rey, Patrick, 2002. "Capacity constraints, mergers and collusion," European Economic Review, Elsevier, vol. 46(1), pages 1-29, January. [Downloadable!] (restricted)
Ohashi, Hiroshi, 2005. "Learning by doing, export subsidies, and industry growth: Japanese steel in the 1950s and 1960s," Journal of International Economics, Elsevier, vol. 66(2), pages 297-323, July. [Downloadable!] (restricted)
Other versions:
- Hiroshi Ohashi, 2004. "Learning by Doing, Export Subsidies, and Industry Growth: Japanese Steel in the 1950s and 1960s," CIRJE F-Series CIRJE-F-280, CIRJE, Faculty of Economics, University of Tokyo. [Downloadable!]
Sharon Oster, 1982. "The Diffusion of Innovation among Steel Firms: The Basic Oxygen Furnace," Bell Journal of Economics, The RAND Corporation, vol. 13(1), pages 45-56, Spring. [Downloadable!] (restricted)
Pesendorfer, Martin, 2003. " Horizontal Mergers in the Paper Industry," RAND Journal of Economics, The RAND Corporation, vol. 34(3), pages 495-515, Autumn.
Other versions:
- Martin Pesendorfer, 1998. "Horizontal Mergers in the Paper Industry," NBER Working Papers 6751, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Hashmi, Aamir Rafique & Van Biesebroeck, Johannes, 2007. "Market Structure and Innovation: A Dynamic Analysis of the Global Automobile Industry," MPRA Paper 1787, University Library of Munich, Germany. [Downloadable!]

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