Do Mergers Lead To Monopoly In The Long Run? Results From The Dominant Firm Model
- Topics:
- Mergers
- Tags:
- Business Operations,
- Corporate Law,
- Federal Reserve Bank Of Minneapolis,
- Finance,
- Investment,
- Merger,
- Mergers & Acquisitions,
- Monopoly
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Overview: This paper discusses that will an industry with no antitrust policy converge into monopoly, competition or somewhere in between. It discusses a dynamic dominant firm model with rational agents, endogenous mergers, and constant returns to scale production. It finds that perfect competition and monopoly are always steady states of this model and that there may be other steady states with a dominant firm and a fringe co-existing. Mergers are likely, only when supply is inelastic, or demand is elastic, suggesting that the ability of a dominant firm to raise price through monopolization is limited. Additionally, as the discount rate increases, it becomes harder to monopolize the industry, because the dominant firm cannot commit to not raising prices in the future.
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Format: PDF | Size: 338KB | Date: Mar 2000 | Pages: 42
