IDEAS home Printed from https://ideas.repec.org/p/esx/essedp/3061.html
   My bibliography  Save this paper

Merger Policy, Entry, and Entrepreneurship

Author

Listed:
  • Mason, Robin
  • Weeds, Helen

Abstract

We assess the impact of merger policy on entry and entrepreneurship. Facing uncertainty about its prospects and foreseeing that it may wish to quit should profitability prove poor, a rational entrant considers possible exit routes. Horizontal merger reduces competition subsequently, lowering welfare in the short run, but also provides a valuable exit route. By facilitating exit and thus raising the value of entry, more lenient merger policy may stimulate entry sufficiently that welfare is increased overall. We calculate the optimal merger policy in the form of a low, but positive, profitability threshold below which a merger is permitted despite its adverse impact on post-merger competition. This may be viewed as an extension of the 'failing firm defence' to include ailing, low profitability firms as well as imminently failing ones. The implications of strategic firm behaviour for the optimal policy are examined, and merger policy is compared with an entry subsidy.

Suggested Citation

  • Mason, Robin & Weeds, Helen, 2007. "Merger Policy, Entry, and Entrepreneurship," Economics Discussion Papers 3061, University of Essex, Department of Economics.
  • Handle: RePEc:esx:essedp:3061
    as

    Download full text from publisher

    File URL: http://repository.essex.ac.uk/3061/
    File Function: original version
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Lucian Arye Bebchuk, 2002. "Ex Ante Costs of Violating Absolute Priority in Bankruptcy," Journal of Finance, American Finance Association, vol. 57(1), pages 445-460, February.
    2. Anthony M. Marino & Ján Zábojník, 2006. "Merger, Ease Of Entry And Entry Deterrence In A Dynamic Model," Journal of Industrial Economics, Wiley Blackwell, vol. 54(3), pages 397-423, September.
    3. Doraszelski, Ulrich & Pakes, Ariel, 2007. "A Framework for Applied Dynamic Analysis in IO," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.),Handbook of Industrial Organization, edition 1, volume 3, chapter 30, pages 1887-1966, Elsevier.
    4. Spector, David, 2003. "Horizontal mergers, entry, and efficiency defences," International Journal of Industrial Organization, Elsevier, vol. 21(10), pages 1591-1600, December.
    5. Motta,Massimo, 2004. "Competition Policy," Cambridge Books, Cambridge University Press, number 9780521016919, April.
    6. Farrell, Joseph & Shapiro, Carl, 1990. "Horizontal Mergers: An Equilibrium Analysis," American Economic Review, American Economic Association, vol. 80(1), pages 107-126, March.
    7. Volker Nocke & Michael D. Whinston, 2010. "Dynamic Merger Review," Journal of Political Economy, University of Chicago Press, vol. 118(6), pages 1201-1251.
    8. Besanko, David & Spulber, Daniel F, 1993. "Contested Mergers and Equilibrium Antitrust Policy," Journal of Law, Economics, and Organization, Oxford University Press, vol. 9(1), pages 1-29, April.
    9. Persson, Lars, 2004. "Predation and mergers: Is merger law counterproductive?," European Economic Review, Elsevier, vol. 48(2), pages 239-258, April.
    10. Neven, Damien J. & Roller, Lars-Hendrik, 2005. "Consumer surplus vs. welfare standard in a political economy model of merger control," International Journal of Industrial Organization, Elsevier, vol. 23(9-10), pages 829-848, December.
    11. Norbäck, Pehr-Johan & Persson, Lars, 2012. "Entrepreneurial innovations, competition and competition policy," European Economic Review, Elsevier, vol. 56(3), pages 488-506.
    12. Xavier Vives, 2008. "Innovation And Competitive Pressure," Journal of Industrial Economics, Wiley Blackwell, vol. 56(3), pages 419-469, December.
    13. John Armour & Douglas Cumming, 2008. "Bankruptcy Law and Entrepreneurship," American Law and Economics Review, Oxford University Press, vol. 10(2), pages 303-350.
    14. Dixit, Avinash K, 1989. "Entry and Exit Decisions under Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 620-638, June.
    15. Hart, Oliver, 1995. "Firms, Contracts, and Financial Structure," OUP Catalogue, Oxford University Press, number 9780198288817.
    16. 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.
    17. Auriol, Emmanuelle & Laffont, Jean-Jacques, 1992. "Regulation by Duopoly," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(3), pages 507-533, Fall.
    18. Ilya Segal & Michael D. Whinston, 2007. "Antitrust in Innovative Industries," American Economic Review, American Economic Association, vol. 97(5), pages 1703-1730, December.
    19. Martin Pesendorfer, 2005. "Mergers Under Entry," RAND Journal of Economics, The RAND Corporation, vol. 36(3), pages 661-679, Autumn.
    20. Werden, Gregory J & Froeb, Luke M, 1998. "The Entry-Inducing Effects of Horizontal Mergers: An Exploratory Analysis," Journal of Industrial Economics, Wiley Blackwell, vol. 46(4), pages 525-543, December.
    21. Fan, Wei & White, Michelle J, 2003. "Personal Bankruptcy and the Level of Entrepreneurial Activity," Journal of Law and Economics, University of Chicago Press, vol. 46(2), pages 543-567, October.
    22. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
    23. Green, Richard C., 1984. "Investment incentives, debt, and warrants," Journal of Financial Economics, Elsevier, vol. 13(1), pages 115-136, March.
    24. Rasmusen, Eric, 1988. "Entry for Buyout," Journal of Industrial Economics, Wiley Blackwell, vol. 36(3), pages 281-299, March.
    25. N. Gregory Mankiw & Michael D. Whinston, 1986. "Free Entry and Social Inefficiency," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 48-58, Spring.
    26. Garth Saloner, 1987. "Predation, Mergers, and Incomplete Information," RAND Journal of Economics, The RAND Corporation, vol. 18(2), pages 165-186, Summer.
    27. Lars Persson, 2005. "The Failing Firm Defense," Journal of Industrial Economics, Wiley Blackwell, vol. 53(2), pages 175-201, June.
    28. McAfee, R Preston & Williams, Michael A, 1992. "Horizontal Mergers and Antitrust Policy," Journal of Industrial Economics, Wiley Blackwell, vol. 40(2), pages 181-187, June.
    29. Morton I. Kamien & Israel Zang, 1990. "The Limits of Monopolization Through Acquisition," The Quarterly Journal of Economics, Oxford University Press, vol. 105(2), pages 465-499.
    30. Jacquemin, Alexis & Slade, Margaret E., 1989. "Cartels, collusion, and horizontal merger," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.),Handbook of Industrial Organization, edition 1, volume 1, chapter 7, pages 415-473, Elsevier.
    31. Mooradian, Robert M, 1994. "The Effect of Bankruptcy Protection on Investment: Chapter 11 as a Screening Device," Journal of Finance, American Finance Association, vol. 49(4), pages 1403-1430, September.
    32. 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.
    33. Gautam Gowrisankaran, 1999. "A Dynamic Model of Endogenous Horizonal Mergers," RAND Journal of Economics, The RAND Corporation, vol. 30(1), pages 56-83, Spring.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Guy Meunier & Jean-Pierre Ponssard & Francisco Ruiz-Alizeda, 2015. "Antitrust Versus Industrial Policies, Entry And Welfare," Working Papers hal-01117091, HAL.
    2. Jaunaux, Laure & Lefouili, Yassine & Sand-Zantman, Wilfried, 2017. "Entry and merger policy," Economics Letters, Elsevier, vol. 161(C), pages 124-129.
    3. Jaunaux, Laure & Lefouili, Yassine & Sand-Zantman, Wilfried, 2017. "Entry and merger policy," Economics Letters, Elsevier, vol. 161(C), pages 124-129.
    4. Elena Chernova & Svetlana Razmanova, 2018. "Development of Competitive Environment in the Oil Market of Russian Federation: Empirical Analysis," Economy of region, Centre for Economic Security, Institute of Economics of Ural Branch of Russian Academy of Sciences, vol. 1(2), pages 547-561.

    More about this item

    JEL classification:

    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:esx:essedp:3061. 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: (Essex Economics Web Manager). General contact details of provider: http://edirc.repec.org/data/edessuk.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.