Limits of Acquisition in Price Competing Industry

Grigory Kosenok

No w0072, Working Papers from Center for Economic and Financial Research (CEFIR)

Abstract: It is well known that under di¤erentiated product monopolistic competition any merger always increases the total pro…t of the merged entity. Because of this one might expect complete monopolization of a price competing industry provided that there are no (legal) barriers to acquisition (merger). In this paper we show that this is not always true. The industry may not get monopolized because the value of a fringe firm is getting higher when the concentration of the industry gets higher. This creates strategic incentives for a fringe firm to be last in the line of those who sell their businesses. Sometimes this type of incentive prevents industry monopolization.

Pages: 47 pages
Date: 2005-08
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Working Paper: Limits of Acquisition in Price Competing Industry (2005)
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