Entry by Merger: Estimates from a Two-Sided Matching Model with Externalities
49 Pages Posted: 12 Dec 2012 Last revised: 15 Nov 2018
Date Written: October 24, 2018
As firms often acquire incumbents to enter new markets, presence of desirable targets affects entry and merger decisions simultaneously. We study these decisions jointly by considering a two-sided matching model with externalities and estimate it using data on commercial banks to investigate the effect of entry deregulation. Our estimation strategy exploits the lattice structure of stable allocations to construct moment inequalities and identify payoffs including potential (dis)synergies. We find greater merger synergies between smaller potential entrants and larger incumbents, and varying entry barriers by mode of entry. By prohibiting de novo entry, our counterfactual quantifies the effect of the deregulation.
Keywords: Two-Sided Matching, Entry, Merger, Partial-Identification
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