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Potential merger†forcing entry reduces maximum spacing between firms in spatial competition

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Listed:
  • Braid, Ralph M.

Abstract

In the literature, the range of market sizes (spacings between firms) consistent with free†entry equilibrium, in various models of spatial competition, extends from the zero†profit market size, up to the market size for which ‘sophisticated entry’ halfway between two existing firms, by an entrant that correctly foresees post†entry prices, is marginally deterred. I argue that the upper limit might be the (significantly smaller) market size for which ‘merger†forcing entry’ by an entrant right next to an existing firm, causing severe price competition and inducing a horizontal merger between the entrant and the existing firm, is marginally deterred.

Suggested Citation

Handle: RePEc:eee:paresc:v:95:y:2016:i:3:p:653-670
DOI: 10.1111/pirs.12142
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JEL classification:

  • R32 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other Spatial Production and Pricing Analysis
  • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
  • 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

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