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Experiments on horizontal mergers: Does size matter?

Author

Listed:
  • Beckman, Steven R.
  • DeAngelo, Gregory
  • James Smith, W.

Abstract

Current Department of Justice merger guidelines assume that merging the capacities of two firms will translate into an equivalent increase in market shares. Size matters. Economic theory asserts size is determined by marginal revenue and marginal cost not capacity. Size does not matter. In this paper we run horizontal merger experiments and find that the firms tend to share monopoly profits regardless of the size of the firms.

Suggested Citation

  • Beckman, Steven R. & DeAngelo, Gregory & James Smith, W., 2012. "Experiments on horizontal mergers: Does size matter?," Economics Letters, Elsevier, vol. 117(3), pages 537-539.
  • Handle: RePEc:eee:ecolet:v:117:y:2012:i:3:p:537-539
    DOI: 10.1016/j.econlet.2012.07.016
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    References listed on IDEAS

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    1. Charness, Gary & Rabin, Matthew, 2005. "Expressed preferences and behavior in experimental games," Games and Economic Behavior, Elsevier, vol. 53(2), pages 151-169, November.
    2. Farrell, Joseph & Shapiro, Carl, 1990. "Horizontal Mergers: An Equilibrium Analysis," American Economic Review, American Economic Association, vol. 80(1), pages 107-126, March.
    3. Huck, Steffen & Normann, Hans-Theo & Oechssler, Jorg, 2004. "Two are few and four are many: number effects in experimental oligopolies," Journal of Economic Behavior & Organization, Elsevier, vol. 53(4), pages 435-446, April.
    4. Stephen W. Salant & Sheldon Switzer & Robert J. Reynolds, 1983. "Losses From Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, Oxford University Press, vol. 98(2), pages 185-199.
    5. Rabin, Matthew, 1993. "Incorporating Fairness into Game Theory and Economics," American Economic Review, American Economic Association, vol. 83(5), pages 1281-1302, December.
    6. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer;Economic Science Association, vol. 10(2), pages 171-178, June.
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    Cited by:

    1. Juan Pablo Herrera Saavedra & Dennis Sánchez Navarro, 2016. "Efectos de integraciones de firmas en mercados de bienes homogéneos," REVISTA FINANZAS Y POLÍTICA ECONÓMICA, UNIVERSIDAD CATOLICA DE COLOMBIA, vol. 8(1), pages 157-164, March.

    More about this item

    Keywords

    Market share; Profits; Firm size; Mergers;

    JEL classification:

    • K2 - Law and Economics - - Regulation and Business Law
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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