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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
  Add to Calendar 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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