The Entry‐Inducing Effects of Horizontal Mergers: An Exploratory Analysis

Gregory J. Werden and Luke Froeb

Journal of Industrial Economics, 1998, vol. 46, issue 4, 525-543

Abstract: Antitrust law presumes that entry normally prevents or reverses anticompetitive effects from horizontal mergers. But when sunk costs associated with entry are at levels suggested by prevailing market structure, the opportunity for entry created by an anticompetitive merger plausibly is too small to induce entry, even absent Stiglerian ‘barriers to entry.’ This is illustrated for Cournot and Bertrand models. Significant entry also makes otherwise profitable Bertrand mergers unprofitable, assuming no efficiency gains. Consequently, the entry issue can be collapsed into the efficiency issue: if a presumably profitable merger does not generate significant efficiencies, it cannot be expected to induce entry.

Date: 1998
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