Antitrust versus industrial policies, entry and welfare

Guy Meunier, Jean-Pierre Ponssard and Francisco Ruiz-Aliseda

No 2015-01, Working Papers from Alimentation et Sciences Sociales

Abstract: In industries with large sunk costs, the investment strategy of firms depends on the regulatory context. We consider ex-ante industrial policies in which the sunk cost may be either taxed or subsidized, and antitrust policies which could either be pro-competitive (leading to divestiture in case of high ex-post profitability) or lenient (allowing mergers in case of low ex-post profitability). Through a simple entry game we completely characterize the impact of these policies and examine their associated dynamic trade-offs between the timing of the investment, the ex-post benefits for the consumers, and the possible duplication of fixed costs. We find that merger policies are dominated by ex-ante industrial policies, whereas the latter are dominated by divestiture policies only under very special circumstances.

Keywords: entry; industry dynamic; antitrust policy; divestiture (search for similar items in EconPapers)
JEL-codes: L1 L4 L5 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2015-03
New Economics Papers: this item is included in nep-com, nep-cta and nep-ind
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Related works:
Working Paper: ANTITRUST VERSUS INDUSTRIAL POLICIES, ENTRY AND WELFARE (2015)
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