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The effects of mergers with dynamic capacity accumulation

  • Chen, Jiawei

The U.S. antitrust law enforcement agencies often base their assessment of mergers on a model with asymmetric costs. However, in many near-homogeneous product industries there is evidence that cost differences are minor and capacity differences seem a more reasonable explanation of firm heterogeneity. Based on simulations from a dynamic model of capacity accumulation, I find that mergers are welfare-reducing and that their long-run effects are worse than their short-run effects. If instead the simulated data is fit to an asymmetric costs model, the long-run welfare-reducing effects of mergers will be systematically underestimated, which can give rise to misguided antitrust policies.

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Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 27 (2009)
Issue (Month): 1 (January)
Pages: 92-109

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Handle: RePEc:eee:indorg:v:27:y:2009:i:1:p:92-109
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