The effects of mergers with dynamic capacity accumulation
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.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- David Besanko & Ulrich Doraszelski, 2004.
"Capacity Dynamics and Endogenous Asymmetries in Firm Size,"
RAND Journal of Economics,
The RAND Corporation, vol. 35(1), pages 23-49, Spring.
- David Besanko & Ulrich Doraszelski, 2002. "Capacity Dynamics and Endogenous Asymmetries in Firm Size," Computing in Economics and Finance 2002 196, Society for Computational Economics.
- Baldwin,John R. & Gorecki,Paul, 1995.
"The Dynamics of Industrial Competition,"
Cambridge University Press, number 9780521465618, june. pag.
- Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-50, September.
- Berry, Steven & Pakes, Ariel, 1993. "Some Applications and Limitations of Recent Advances in Empirical Industrial Organization: Merger Analysis," American Economic Review, American Economic Association, vol. 83(2), pages 247-52, May.
- Martin Pesendorfer, 1998.
"Horizontal Mergers in the Paper Industry,"
NBER Working Papers
6751, National Bureau of Economic Research, Inc.
- Farrell, J. & Shapiro, C., 1988.
"Horizontal Mergers: An Equilibrium Analysis,"
17, Princeton, Woodrow Wilson School - Discussion Paper.
- Farrell, Joseph & Shapiro, Carl, 1988. "Horizontal Mergers: An Equilibrium Analysis," Department of Economics, Working Paper Series qt0tp305nx, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Joseph Farrell and Carl Shapiro., 1988. "Horizontal Mergers: An Equilibrium Analysis," Economics Working Papers 8880, University of California at Berkeley.
- Richard, Oliver, 2003. "Flight frequency and mergers in airline markets," International Journal of Industrial Organization, Elsevier, vol. 21(6), pages 907-922, June.
- Spence, Michael, 1976. "Product Differentiation and Welfare," American Economic Review, American Economic Association, vol. 66(2), pages 407-14, May.
- Ariel Pakes & Paul McGuire, 1994.
"Computing Markov-Perfect Nash Equilibria: Numerical Implications of a Dynamic Differentiated Product Model,"
RAND Journal of Economics,
The RAND Corporation, vol. 25(4), pages 555-589, Winter.
- Ariel Pakes & Paul McGuire, 1992. "Computing Markov perfect Nash equilibria: numerical implications of a dynamic differentiated product model," Discussion Paper / Institute for Empirical Macroeconomics 58, Federal Reserve Bank of Minneapolis.
- Ariel Pakes & Paul McGuire, 1992. "Computing Markov Perfect Nash Equilibria: Numerical Implications of a Dynamic Differentiated Product Model," NBER Technical Working Papers 0119, National Bureau of Economic Research, Inc.
- Maggi, Giovanni, 1996. "Strategic Trade Policies with Endogenous Mode of Competition," American Economic Review, American Economic Association, vol. 86(1), pages 237-58, March.
- Kwang Soo Cheong & Kenneth L Judd, 1997. "Mergers and Dynamic Oligopoly," Working Papers 199714, University of Hawaii at Manoa, Department of Economics.
- 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.
- Richard Ericson & Ariel Pakes, 1995. "Markov-Perfect Industry Dynamics: A Framework for Empirical Work," Review of Economic Studies, Oxford University Press, vol. 62(1), pages 53-82.
- Raymond Deneckere & Carl Davidson, 1985. "Incentives to Form Coalitions with Bertrand Competition," RAND Journal of Economics, The RAND Corporation, vol. 16(4), pages 473-486, Winter.
- Mueller,Dennis C., 2009.
"Profits in the Long Run,"
Cambridge University Press, number 9780521101592, june. pag.
- Froeb, Luke & Geweke, John, 1987. "Long run competition in the U.S. aluminum industry," International Journal of Industrial Organization, Elsevier, vol. 5(1), pages 67-78, March.
- Kwang-Soo Cheong, . "Mergers and Dynamic Oligopoly," Computing in Economics and Finance 1997 126, Society for Computational Economics.
- Levin, Dan, 1990.
"Horizontal Mergers: The 50-Percent Benchmark,"
American Economic Review,
American Economic Association, vol. 80(5), pages 1238-45, December.
- McAfee, R Preston & Williams, Michael A, 1992. "Horizontal Mergers and Antitrust Policy," Journal of Industrial Economics, Wiley Blackwell, vol. 40(2), pages 181-87, June.
- Sheng-Ping Yang, 2002. "Identifying a dominant firm's market power among sellers of a homogeneous product: an application to Alcoa," Applied Economics, Taylor & Francis Journals, vol. 34(11), pages 1411-1419.
- Werden, Gregory J & Froeb, Luke M, 1994. "The Effects of Mergers in Differentiated Products Industries: Logit Demand and Merger Policy," Journal of Law, Economics and Organization, Oxford University Press, vol. 10(2), pages 407-26, October.
- Boccard, Nicolas & Wauthy, Xavier, 2000.
"Bertrand competition and Cournot outcomes: further results,"
Elsevier, vol. 68(3), pages 279-285, September.
- BOCCARD , Nicolas & WAUTHY, Xavier, . "Bertrand competition and Cournot outcomes: futher results," CORE Discussion Papers RP 1474, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Carlton, Dennis W & Gertner, Robert, 1989. "Market Power and Mergers in Durable-Good Industries," Journal of Law and Economics, University of Chicago Press, vol. 32(2), pages S203-26, October.
- Perry, Martin K & Porter, Robert H, 1985. "Oligopoly and the Incentive for Horizontal Merger," American Economic Review, American Economic Association, vol. 75(1), pages 219-27, March.
- David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn.
- Dalkir, Serdar & Logan, John W. & Masson, Robert T., 2000. "Mergers in symmetric and asymmetric noncooperative auction markets: the effects on prices and efficiency," International Journal of Industrial Organization, Elsevier, vol. 18(3), pages 383-413, April.
- Reynolds, Stanley S, 1986. "Strategic Capital Investment in the American Aluminum Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 34(3), pages 225-45, March.
- Compte, Olivier & Jenny, Frederic & Rey, Patrick, 2002. "Capacity constraints, mergers and collusion," European Economic Review, Elsevier, vol. 46(1), pages 1-29, January.
- Levy, David T & Reitzes, James D, 1992. "Anticompetitive Effects of Mergers in Markets with Localized Competition," Journal of Law, Economics and Organization, Oxford University Press, vol. 8(2), pages 427-40, April.
- Rosenbaum, David I., 1989. "An empirical test of the effect of excess capacity in price setting, capacity-constrained supergames," International Journal of Industrial Organization, Elsevier, vol. 7(2), pages 231-241, June.
When requesting a correction, please mention this item's handle: RePEc:eee:indorg:v:27:y:2009:i:1:p:92-109. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.