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Mergers, Innovation, and Entry-Exit Dynamics: Consolidation of the Hard Disk Drive Industry, 1996–2016

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  • Mitsuru Igami
  • Kosuke Uetake

Abstract

How far should an industry be allowed to consolidate when competition and innovation are endogenous? We develop a stochastically alternating-move game of dynamic oligopoly and estimate it using data from the hard disk drive industry, in which a dozen global players consolidated into only three in the last 20 years. We find plateau-shaped equilibrium relationships between competition and innovation, with heterogeneity across time and productivity. Our counterfactual simulations suggest the current rule-of-thumb policy, which stops mergers when three or fewer firms exist, strikes approximately the right balance between pro-competitive effects and value-destruction side effects in this dynamic welfare trade-off.

Suggested Citation

  • Mitsuru Igami & Kosuke Uetake, 2020. "Mergers, Innovation, and Entry-Exit Dynamics: Consolidation of the Hard Disk Drive Industry, 1996–2016," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 87(6), pages 2672-2702.
    • Handle: RePEc:oup:restud:v:87:y:2020:i:6:p:2672-2702.
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    File URL: http://hdl.handle.net/10.1093/restud/rdz044
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