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Merger policy, entry, and entrepreneurship

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  • Mason, Robin
  • Weeds, Helen

Abstract

We assess the impact of merger policy on entry and entrepreneurship. When faced with uncertainty about its prospects, and foreseeing that it may wish to leave the market should profitability prove poor, a rational entrant considers possible exit routes. Horizontal merger reduces competition post-merger which, all else being equal, lowers welfare; but merger also provides a valuable exit route. By facilitating exit and thus raising the value of entry, more lenient merger policy may stimulate entry sufficiently that welfare is increased overall. We calculate the optimal merger policy in the form of a low, but positive, profitability threshold below which merger is permitted despite the adverse impact on post-merger competition. This may be viewed as an extension of the “failing firm defence” to include ailing, low profitability firms as well as imminently failing ones. Merger policy is compared with an entry subsidy, and the implications of strategic firm behaviour for the choice of merger policy are also examined.

Suggested Citation

  • Mason, Robin & Weeds, Helen, 2013. "Merger policy, entry, and entrepreneurship," European Economic Review, Elsevier, vol. 57(C), pages 23-38.
  • Handle: RePEc:eee:eecrev:v:57:y:2013:i:c:p:23-38
    DOI: 10.1016/j.euroecorev.2012.10.006
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    Cited by:

    1. Guy Meunier & Jean-Pierre Ponssard & Francisco Ruiz-Alizeda, 2015. "Antitrust Versus Industrial Policies, Entry And Welfare," Working Papers hal-01117091, HAL.
    2. Jaunaux, Laure & Lefouili, Yassine & Sand-Zantman, Wilfried, 2017. "Entry and merger policy," Economics Letters, Elsevier, vol. 161(C), pages 124-129.

    More about this item

    Keywords

    Merger policy; Entry; Exit; Entrepreneurship;

    JEL classification:

    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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