Acquisitions Versus Entry: The Evolution of Concentration

University of Zurich Socioeconomic Institute Working Paper No. 0208

38 Pages Posted: 18 Nov 2002

See all articles by Zava Aydemir

Zava Aydemir

University of Zurich - Socioeconomic Institute - Department of Economics

Armin Schmutzler

University of Zurich - Department of Economics; Centre for Economic Policy Research (CEPR)

Date Written: August 2002

Abstract

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.

Keywords: Acquisitions, Entry, Concentration, Synergies, Product Variety

JEL Classification: D43, L11, L12, L13

Suggested Citation

Aydemir, Zava and Schmutzler, Armin, Acquisitions Versus Entry: The Evolution of Concentration (August 2002). University of Zurich Socioeconomic Institute Working Paper No. 0208, Available at SSRN: https://ssrn.com/abstract=336120 or http://dx.doi.org/10.2139/ssrn.336120

Zava Aydemir

University of Zurich - Socioeconomic Institute - Department of Economics ( email )

Zuerich
Switzerland
+41 1 634 39 96 (Phone)
+41 1 634 49 87 (Fax)

Armin Schmutzler (Contact Author)

University of Zurich - Department of Economics ( email )

Z├╝rich, CH-8006
Switzerland

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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