Monopolisation and Industry Structure
The aim of this paper is to provide empirically testable predictions regarding the relationship between market size and concentration. In the first part of the paper, a model of endogenous horizontal mergers is investigated. It is shown that concentrated outcomes can not be supported in a free entry equilibrium in large exogenous sunk cost industries: the upper bound to concentration tends to zero as market size (relative to setup costs) tends to infinity. In contrast, arbitrarily concentrated outcomes may be sustained in endogenous sunk cost industries, no matter how large the market, and even in the absence of mergers; that is, the upper bound to concentration does not decrease with market size. The second part of the paper formalises Stigler's idea that mergers may induce new entry. Using a recent equilibrium concept, which is defined not in the space of strategies, but in the space of observable outcomes, it is shown that the above predictions do not depend on the details of the extensive form of the game, even allowing for side payments between firms and endogenous product choice. The results complement those of Sutton (1991) on the stability of fragmented outcomes.
|Date of creation:||01 Aug 2000|
|Contact details of provider:|| Phone: 1 212 998 3820|
Fax: 1 212 995 4487
Web page: http://www.econometricsociety.org/pastmeetings.asp
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Berry, Steven T, 1992. "Estimation of a Model of Entry in the Airline Industry," Econometrica, Econometric Society, vol. 60(4), pages 889-917, July.
- Compte, Olivier & Jenny, Frederic & Rey, Patrick, 2002. "Capacity constraints, mergers and collusion," European Economic Review, Elsevier, vol. 46(1), pages 1-29, January.
- Perry, Martin K & Porter, Robert H, 1985. "Oligopoly and the Incentive for Horizontal Merger," American Economic Review, American Economic Association, vol. 75(1), pages 219-227, March.
- Hart, Sergiu & Kurz, Mordecai, 1983. "Endogenous Formation of Coalitions," Econometrica, Econometric Society, vol. 51(4), pages 1047-1064, July.
- Timothy F. Bresnahan & Peter C. Reiss, 1990. "Entry in Monopoly Market," Review of Economic Studies, Oxford University Press, vol. 57(4), pages 531-553.
- Robinson, William T & Chiang, Jeongwen, 1996. "Are Sutton's Predictions Robust?: Empirical Insights into Advertising, R&D, and Concentration," Journal of Industrial Economics, Wiley Blackwell, vol. 44(4), pages 389-408, December.
- Kamien, Morton I & Zang, Israel, 1993. "Monopolization by Sequential Acquisition," Journal of Law, Economics and Organization, Oxford University Press, vol. 9(2), pages 205-229, October.
- Champsaur, Paul & Rochet, Jean-Charles, 1989.
Econometric Society, vol. 57(3), pages 533-557, May.
When requesting a correction, please mention this item's handle: RePEc:ecm:wc2000:0429. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum)
If references are entirely missing, you can add them using this form.