A Dynamic Model of Endogenous Horizonal Mergers

Gautam Gowrisankaran

RAND Journal of Economics, 1999, vol. 30, issue 1, 56-83

Abstract: I develop a dynamic model of mergers, where mergers, investment, entry, and exit are endogenous variables rationally chosen by firms to maximize expected future profits. This model differs from previous analyses in that it incorporates dynamics and endogenizes the merger process. The model generates reasonable predictions: allowing for mergers has the expected effect on entry, exit, investment, and surpluses; changes in tastes and technologies affect industry equilibrium in plausible ways. The results demonstrate that this type of analysis is feasible and can potentially be used as a tool for antitrust policy analysis.

Date: 1999
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