A Dynamic Model of Endogenous Horizonal Mergers

I develop a dynamic model of mergers, where mergers, investment, entry, and exit are endogenous variables rationally chosen by firms to maximize expected future profits. This model differs from previous analyses in that it incorporates dynamics and endogenizes the merger process. The model generates reasonable predictions: allowing for mergers has the expected effect on entry, exit, investment, and surpluses; changes in tastes and technologies affect industry equilibrium in plausible ways. The results demonstrate that this type of analysis is feasible and can potentially be used as a tool for antitrust policy analysis.

[1]  George J. Stigler,et al.  The Organization of Industry , 1969 .

[2]  S. Hart,et al.  On the endogenous formation of coalitions , 1983 .

[3]  Michael E. Porter,et al.  The Capacity Expansion Process in a Growing Oligopoly: The Case of Corn Wet Milling , 1982 .

[4]  S. Salant,et al.  Losses From Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium , 1983 .

[5]  E. Maskin,et al.  Overview and quantity competition with large fixed costs , 1988 .

[6]  R. Deneckere,et al.  Incentives to Form Coalitions with Bertrand Competition , 1985 .

[7]  E. Maskin,et al.  A Theory of Dynamic Oligopoly, II: Price Competition , 1985 .

[8]  Robert H. Porter,et al.  Oligopoly and the incentive for horizontal merger , 1985 .

[9]  C. Shapiro,et al.  Horizontal Mergers: An Equilibrium Analysis , 1988 .

[10]  Israel Zang,et al.  The Limits of Monopolization Through Acquisition , 1990 .

[11]  R. McAfee,et al.  Horizontal Mergers in Spatially Differentiated Noncooperative Markets , 1992 .

[12]  S. Salant,et al.  Mergers of producers of perfect complements competing in price , 1992 .

[13]  A. Pakes,et al.  Computing Markov Perfect Nash Equilibria: Numerical Implications of a Dynamic Differentiated Product Model , 1992 .

[14]  Ariel Pakes,et al.  An Alternative Theory of Firm and Industry Dynamics , 1992 .

[15]  Steven T. Berry,et al.  Some Applications and Limitations of Recent Advances in Empirical Industrial Organization: Merger Analysis , 1993 .

[16]  A. Pakes,et al.  Markov-Perfect Industry Dynamics: A Framework for Empirical Work , 1995 .

[17]  A Dynamic Analysis of Mergers , 1995 .

[18]  Francis Bloch.  Endogenous Structures of Association in Oligopolies , 1995 .

[19]  Francis Bloch.  Sequential Formation of Coalitions in Games with Externalities and Fixed Payoff Division , 1996 .

[20]  K. Judd,et al.  Mergers and Dynamic Oligopoly , 1997 .

[21]  Autam,et al.  Dynamic Equilibrium in the Hospital Industry , 1997 .

[22]  G. Gowrisankaran,et al.  Efficient representation of state spaces for some dynamic models , 1999 .