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Horizontal Mergers and Exit in Declining Industries

  • Darren Filson

    (Claremont Graduate University)

  • Bunchon Songsamphant

    (Claremont Graduate University)

Previous work on exit in declining industries has neglected mergers. We examine a simple model that predicts which declining industries experience horizontal mergers. Mergers are more likely if 1) market concentration is high; 2) the inverse demand curve is steep at high levels of output and flat at low levels of output; and 3) the industry declines slowly early on and rapidly later on. The conditions that make mergers privately profitable also tend to make them socially optimal. We test the model using U.S. manufacturing industries that declined during 1975-1995 and find some empirical support.

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Paper provided by Claremont Colleges in its series Claremont Colleges Working Papers with number 2001-13.

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Handle: RePEc:clm:clmeco:2001-13
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  1. Filson, Darren, 2002. "Product and process innovations in the life cycle of an industry," Journal of Economic Behavior & Organization, Elsevier, vol. 49(1), pages 97-112, September.
  2. April Mitchell Franco & Darren Filson, 2000. "Knowledge diffusion through employee mobility," Staff Report 272, Federal Reserve Bank of Minneapolis.
  3. 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.
  4. 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.
  5. King, Stephen P, 1998. "The Behaviour of Declining Industries," The Economic Record, The Economic Society of Australia, vol. 74(226), pages 217-30, September.
  6. 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.
  7. 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.
  8. 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.
  9. Ghemawat, Pankaj & Nalebuff, Barry, 1990. "The Devolution of Declining Industries," The Quarterly Journal of Economics, MIT Press, vol. 105(1), pages 167-86, February.
  10. Eric J. Bartelsman & Wayne Gray, 1996. "The NBER Manufacturing Productivity Database," NBER Technical Working Papers 0205, National Bureau of Economic Research, Inc.
  11. Fudenberg, Drew & Tirole, Jean, 1986. "A Theory of Exit in Duopoly," Econometrica, Econometric Society, vol. 54(4), pages 943-60, July.
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