Does the potential to merge reduce competition?

Hackbarth, D. and Taub, B. (2021) Does the potential to merge reduce competition? Management Science, (Accepted for Publication)

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Abstract

We study anti-competitive horizontal mergers in a dynamic model with noisy collusion. At each instant, firms either privately choose output levels or merge to form a monopoly, trading off the benefits of avoiding price wars against the costs of merging. The potential to merge decreases pre-merger collusion, as punishments effected by price wars are weakened. We thus extend the result of Davidson and Deneckere (1984), who analyzed the weakening of punishments post-merger, demonstrating that pre-merger collusion is weakened, in a fully stochastic model. Thus, although anti-competitive mergers harm competition ex-post, the implication is that barriers and costs of merging due to regulation should be reduced to promote competition ex-ante.

Item Type:Articles
Status:Accepted for Publication
Refereed:Yes
Glasgow Author(s) Enlighten ID:Taub, Professor Bart
Authors: Hackbarth, D., and Taub, B.
Subjects:H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:Management Science
Publisher:INFORMS
ISSN:0025-1909
ISSN (Online):1526-5501
Copyright Holders:Copyright © 2021 INFORMS
First Published:First published in Management Science 2021
Publisher Policy:Reproduced in accordance with the copyright policy of the publisher

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Project CodeAward NoProject NamePrincipal InvestigatorFunder's NameFunder RefLead Dept
Project 5-100Bart TaubRussian GovernmentUNSPECIFIED
Bart TaubEuropean University InstituteBraudel Fellowship