Macroeconomics Seminar: Does the Potential to Merge Reduce Competition? Bart Taub- University of Glasgow (with Dirk Hackbarth)
Dates:
- Fri 27 Nov 2020 11.00 - 12.15
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2020-11-27 11:00
2020-11-27 12:15
Europe/Paris
Macroeconomics Seminar: Does the Potential to Merge Reduce Competition? Bart Taub- University of Glasgow (with Dirk Hackbarth)
We study anti-competitive horizontal mergers in a dynamic model with noisy collusion. At each instant, firms either privately choose output levels or merge to form a monopoly, trading off the benefits of avoiding price wars against the costs of merging. The potential to merge decreases pre-merger collusion, as punishments effected by price wars are weakened. We thus extend the result of Davidson and Deneckere (1984), who analyzed the weakening of punishments postmerger, demonstrating that pre-merger collusion is weakened, in a fully stochastic model. Thus, although anti-competitive mergers harm competition ex-post, the implication is that barriers and costs of merging due to regulation should be reduced to promote competition ex-ante.
Outside EUI premises -
DD/MM/YYYY
Outside EUI premises -
We study anti-competitive horizontal mergers in a dynamic model with noisy collusion. At each instant, firms either privately choose output levels or merge to form a monopoly, trading off the benefits of avoiding price wars against the costs of merging. The potential to merge decreases pre-merger collusion, as punishments effected by price wars are weakened. We thus extend the result of Davidson and Deneckere (1984), who analyzed the weakening of punishments postmerger, demonstrating that pre-merger collusion is weakened, in a fully stochastic model. Thus, although anti-competitive mergers harm competition ex-post, the implication is that barriers and costs of merging due to regulation should be reduced to promote competition ex-ante.
- Location:
- Outside EUI premises -
- Affiliation:
- Department of Economics
- Type:
- Seminar series
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