Acquisitions versus Entry: The Evolution of Concentration
University of Zurich - Socioeconomic Institute - Department of Economics
University of Zurich - Department of Economics; Centre for Economic Policy Research (CEPR)
University of Zurich Socioeconomic Institute Working Paper No. 0208
We consider market dynamics in a reduced form model. In the simplest version, there are two investors and several small non-investing firms. In each period, one investor can acquire a small firm, the other investor decides about market entry. After that all firms play an oligopoly game. We derive conditions under which increasing market concentration arises with myopic firms, we show that a model with forward-looking firms and with arbitrary numbers of investors yield similar results. We apply the framework to a Cournot model with cost synergies and a Bertrand model where acquisitions extend the product spectrum of a firm.
Number of Pages in PDF File: 38
Keywords: Acquisitions, Entry, Concentration, Synergies, Product Variety
JEL Classification: D43, L11, L12, L13working papers series
Date posted: November 18, 2002
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