Mergers, Innovation, and Entry-Exit Dynamics: Consolidation of the Hard Disk Drive Industry, 1996–2016

Mitsuru Igami and Kosuke Uetake

The Review of Economic Studies, 2020, vol. 87, issue 6, 2672-2702

Abstract: How far should an industry be allowed to consolidate when competition and innovation are endogenous? We develop a stochastically alternating-move game of dynamic oligopoly and estimate it using data from the hard disk drive industry, in which a dozen global players consolidated into only three in the last 20 years. We find plateau-shaped equilibrium relationships between competition and innovation, with heterogeneity across time and productivity. Our counterfactual simulations suggest the current rule-of-thumb policy, which stops mergers when three or fewer firms exist, strikes approximately the right balance between pro-competitive effects and value-destruction side effects in this dynamic welfare trade-off.

Keywords: Antitrust; Competition and innovation; Dynamic oligopoly; Dynamic welfare trade-off; Entry and exit; Horizontal mergers; Industry consolidation; L13; L41; L63; O31 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (25)

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