Merger, Ease of Entry, and Entry Deterrence in a Dynamic Model
40 Pages Posted: 6 May 2003
Date Written: July 2006
We analyze whether ease and speed of entry can mitigate the anti-competititve effects of a merger, in a dynamic model of endogenous merger. In our model, if new firms can enter quickly, it is more likely that merger is motivated by efficiency as opposed to increased market power. Thus, there is less reason to challenge the merger. On the other hand, if entry of new firms becomes less costly, firms may have a stronger incentive to monopolize the industry through horizontal merger. We also show that when the incumbent can engage in entry deterrence activities, anti-merger policy can decrease welfare.
Keywords: Horizontal Mergers, Entry Deterrence
JEL Classification: K21, L41
Suggested Citation: Suggested Citation