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Horizontal mergers and exit in declining industries

  • Darren Filson
  • Bunchon Songsamphant

Previous work on exit in declining industries has neglected mergers. This paper examines a simple model that illustrates how mergers can affect the order of exit. The model also predicts which declining industries experience horizontal mergers. Mergers are more likely if (1) the inverse demand curve is steep at high levels of output and flat at low levels of output; (2) the industry declines slowly early on and rapidly later on; and (3) market concentration is high. The conditions that make mergers privately profitable also tend to make them socially optimal.

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Article provided by Taylor & Francis Journals in its journal Applied Economics Letters.

Volume (Year): 12 (2005)
Issue (Month): 2 ()
Pages: 129-132

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Handle: RePEc:taf:apeclt:v:12:y:2005:i:2:p:129-132
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  1. Baden-Fuller, Charles W F, 1989. "Exit from Declining Industries and the Case of Steel Castings," Economic Journal, Royal Economic Society, vol. 99(398), pages 949-61, December.
  2. April Mitchell Franco & Darren Filson, 2000. "Knowledge Diffusion through Employee Mobility," Claremont Colleges Working Papers 2000-61, Claremont Colleges.
  3. King, Stephen P, 1998. "The Behaviour of Declining Industries," The Economic Record, The Economic Society of Australia, vol. 74(226), pages 217-30, September.
  4. Darren Filson, . "Product and Process Innovations in the Life Cycle of an Industry," Claremont Colleges Working Papers 2000-30, Claremont Colleges.
  5. Darren Filson & Edward Keen & Eric Fruits & Thomas E. Borcherding, . "Market Power and Cartel Formation: Theory and an Empirical Test," Claremont Colleges Working Papers 2000-31, Claremont Colleges.
  6. Fudenberg, Drew & Tirole, Jean, 1986. "A Theory of Exit in Duopoly," Econometrica, Econometric Society, vol. 54(4), pages 943-60, July.
  7. Ghemawat, Pankaj & Nalebuff, Barry, 1990. "The Devolution of Declining Industries," The Quarterly Journal of Economics, MIT Press, vol. 105(1), pages 167-86, February.
  8. Eric J. Bartelsman & Wayne Gray, 1996. "The NBER Manufacturing Productivity Database," NBER Technical Working Papers 0205, National Bureau of Economic Research, Inc.
  9. Dutz, Mark A., 1989. "Horizontal mergers in declining industries : Theory and evidence," International Journal of Industrial Organization, Elsevier, vol. 7(1), pages 11-33, March.
  10. Mary E. Deily, 1991. "Exit Strategies and Plant-Closing Decisions: The Case of Steel," RAND Journal of Economics, The RAND Corporation, vol. 22(2), pages 250-263, Summer.
  11. 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.
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