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Mergers and Sunk Costs: An Application to the Ready-Mix Concrete Industry

Allan Collard-Wexler ()

American Economic Journal: Microeconomics, 2014, vol. 6, issue 4, 407-47

Abstract: Horizontal mergers have a large impact by inducing a long-lasting change in market structure. Only in an industry with substantial entry barriers is a merger not immediately counteracted by post-merger entry. To evaluate the duration of the effects of a merger, I use the model of Abbring and Campbell (2010) to estimate demand thresholds for entry and for exit. These thresholds, along with the process for demand, are estimated using data from the ready-mix concrete industry. Simulations predict that a merger from duopoly to monopoly generates between 9 and 10 years of monopoly in the market.

JEL-codes: G34 K21 L12 L13 L41 L61 (search for similar items in EconPapers)
Date: 2014
Note: DOI: 10.1257/mic.6.4.407
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American Economic Journal: Microeconomics is currently edited by Johannes Hörner

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Handle: RePEc:aea:aejmic:v:6:y:2014:i:4:p:407-47