Does the Potential to Merge Reduce Competition?

Dirk Hackbarth and Bart Taub ()
Additional contact information
Bart Taub: Adam Smith Business School, University of Glasgow, Glasgow G12 8QQ, United Kingdom

Management Science, 2022, vol. 68, issue 7, 5364-5383

Abstract: We study anticompetitive 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 [Davidson C, Deneckere R (1984) Horizontal mergers and collusive behavior. Internat. J. Indust. Organ. 2(2):117–132.], who analyzed the weakening of punishments post-merger, demonstrating that pre-merger collusion is weakened, in a fully stochastic model. Thus, although anticompetitive mergers harm competition ex post, the implication is that barriers and costs of merging due to regulation should be reduced to promote competition exante.

Keywords: competition; imperfect information; industry structure; market power; mergers (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://dx.doi.org/10.1287/mnsc.2021.4089 (application/pdf)

Related works:
Working Paper: Does the Potential to Merge Reduce Competition? (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:68:y:2022:i:7:p:5364-5383

Access Statistics for this article

More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().