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Mergers and Sunk Costs: An Application to the Ready-Mix Concrete Industry

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  • Allan Collard-Wexler Jr.

Abstract

Horizontal mergers have a large impact by inducing a long-lasting change in market structure. Only in an industry with substantial entry barriers is a merger not immediately counteracted by post-merger entry. To evaluate the duration of the effects of a merger, I use the model of Abbring and Campbell (2010) to estimate demand thresholds for entry and for exit. These thresholds, along with the process for demand, are estimated using data from the ready-mix concrete industry. Simulations predict that a merger from duopoly to monopoly generates between 9 and 10 years of monopoly in the market.

Suggested Citation

  • Allan Collard-Wexler Jr., 2014. "Mergers and Sunk Costs: An Application to the Ready-Mix Concrete Industry," American Economic Journal: Microeconomics, American Economic Association, vol. 6(4), pages 407-447, November.
  • Handle: RePEc:aea:aejmic:v:6:y:2014:i:4:p:407-47
    Note: DOI: 10.1257/mic.6.4.407
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    Citations

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    Cited by:

    1. repec:taf:applec:v:50:y:2018:i:15:p:1694-1715 is not listed on IDEAS
    2. Martin Lábaj & Karol Morvay & Peter Silanič & Christoph Weiss & Biliana Yontcheva, 2018. "Market structure and competition in transition: results from a spatial analysis," Applied Economics, Taylor & Francis Journals, vol. 50(15), pages 1694-1715, March.
    3. Robert Kulick, 2017. "Ready-to-Mix: Horizontal Mergers, Prices, and Productivity," Working Papers 17-38, Center for Economic Studies, U.S. Census Bureau.
    4. Astrid Pennerstorfer & Dieter Pennerstorfer, 2018. "How Small are Small Markets? Location Choice and Geographical Market Size for Child Care Services," Economics working papers 2018-14, Department of Economics, Johannes Kepler University Linz, Austria.

    More about this item

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L61 - Industrial Organization - - Industry Studies: Manufacturing - - - Metals and Metal Products; Cement; Glass; Ceramics

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