Download this Paper Open PDF in Browser

Does the Dearth of Anticompetitive Mergers Mean More Competition in Imperfectly Competitive Industries?

66 Pages Posted: 8 Mar 2012 Last revised: 13 Mar 2017

Dirk Hackbarth

Boston University Questrom School of Business

Bart Taub

University of Illinois

Date Written: March 13, 2017

Abstract

We study mergers in a duopoly with differentiated products and noisy observations of firms' actions. Firms select dynamically optimal actions that are not static best responses and merger incentives arise endogenously when firms sufficiently deviate from their collusive actions. The incentive to merge trades off the gains from avoiding price wars against the gains from a monopoly net of the fixed cost of merging. We show that long periods of pre-merger collusion are supported, because collusion is dynamically stable and merging is unstable, with mergers occurring only when collusion has failed, potentially explaining the observed dearth of mergers. Also, the potential to merge reduces successful collusion overall: this is because the potential to merge moderates the punishments that would be exacted via price wars that would otherwise occur.

Keywords: Anticompetitive effect, imperfect information, industry structure, takeovers

JEL Classification: D43, L12, L13, G34

Suggested Citation

Hackbarth, Dirk and Taub, Bart, Does the Dearth of Anticompetitive Mergers Mean More Competition in Imperfectly Competitive Industries? (March 13, 2017). Available at SSRN: https://ssrn.com/abstract=2018612 or http://dx.doi.org/10.2139/ssrn.2018612

Dirk Hackbarth

Boston University Questrom School of Business ( email )

Department of Finance
595 Commonwealth Avenue
Boston, MA 02215
United States
(617) 358-4206 (Phone)
(617) 353-6667 (Fax)

HOME PAGE: http://people.bu.edu/dhackbar/

Bart M. Taub (Contact Author)

University of Illinois ( email )

410 David Kinley Hall
1407 W. Gregory
Urbana, IL 61801
United States
217-333-3467 (Phone)
217-244-6678 (Fax)

Paper statistics

Downloads
134
Rank
181,640
Abstract Views
846