Conglomerate Mergers and Foreclosure
The article offers a complementary theory for conglomerate mergers. Conglomerate mergers take place to achieve control over distribution channels that otherwise could be used by rival entrants. An entrant with a very differentiated product is accommodated, and an entrant with a close substitute is foreclosed through a conglomerate merger. There also exist equilibria with partial foreclosure where the entrant is forced onto less efficient distribution channels. Incumbent firms' mergers to achieve foreclosure is socially wasteful.
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|Date of creation:||1999|
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