Mergers, Innovation, and Entry-Exit Dynamics: Consolidation of the Hard Disk Drive Industry, 1996-2016

The Review of Economic Studies, Forthcoming

Posted: 28 Mar 2015 Last revised: 16 Aug 2019

See all articles by Mitsuru Igami

Mitsuru Igami

Yale University - Department of Economics ; Yale University - Cowles Foundation

Kosuke Uetake

Yale School of Management

Date Written: August 6, 2019

Abstract

How far should an industry be allowed to consolidate when competition and innovation are endogenous? We develop a stochastically alternating-move game of dynamic oligopoly, and estimate it using data from the hard disk drive industry, in which a dozen global players consolidated into only three in the last 20 years. We find plateau-shaped equilibrium relationships between competition and innovation, with heterogeneity across time and productivity. Our counterfactual simulations suggest the current rule-of-thumb policy, which stops mergers when three or fewer firms exist, strikes approximately the right balance between pro-competitive effects and value-destruction side effects in this dynamic welfare tradeoff.

Keywords: Antitrust, Competition and Innovation, Dynamic Oligopoly, Dynamic Welfare Tradeoff, Entry and Exit, Horizontal Mergers, Industry Consolidation

JEL Classification: L13, L41, L63, O31

Suggested Citation

Igami, Mitsuru and Uetake, Kosuke, Mergers, Innovation, and Entry-Exit Dynamics: Consolidation of the Hard Disk Drive Industry, 1996-2016 (August 6, 2019). The Review of Economic Studies, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2585840 or http://dx.doi.org/10.2139/ssrn.2585840

Mitsuru Igami (Contact Author)

Yale University - Department of Economics ( email )

28 Hillhouse Ave
New Haven, CT 06520-8268
United States

Yale University - Cowles Foundation

Box 208281
New Haven, CT 06520-8281
United States

Kosuke Uetake

Yale School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

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