A New Perspective on Entry in Horizontal Merger Analysis

I analyze horizontal mergers in procurement settings in which sellers incur costs to participate. Considering existing sellers’ contest-level entry differs from antitrust authorities’ typical emphasis on new sellers’ market-level entry to counteract a merger’s anticompetitive harm. I show that profitable mergers can increase consumer and total surplus by inducing more and stronger contest-level entry by the merged seller, which echoes common claims from merging parties that their merger is beneficial because it creates a stronger competitor. This finding suggests caution by antitrust authorities: when contest-level entry costs matter, standard models that ignore those costs prescribe blocking procompetitive mergers.