A Dynamic Model of Endogenous Horizonal Mergers
Volume: Volume 30, No. 1
Issue: Spring 1999
Pages: pp. 56-83
Authors: Gautam Gowrisankaran
Title: A Dynamic Model of Endogenous Horizonal Mergers
Abstract: I develop a dynamic model of mergers, where mergers, investment, entry, and exit are endogenous variables rationally chosen by firms to maximize expected future profits. This model differs from previous analyses in that it incorporates dynamics and endogenizes the merger process. The model generates reasonable predictions: allowing for mergers has the expected effect on entry, exit, investment, and surpluses; changes in tastes and technologies affect industry equilibrium in plausible ways. The results demonstrate that this type of analysis is feasible and can potentially be used as a tool for antitrust policy analysis.
JEL Classification
Mergers Acquisitions Restructuring Voting Proxy Contests Corporate Governance
(G340)
Production, Pricing, and Market Structure Size and Size Distribution of Firms Concentration, Product Differentiation, Entry and Exit
(L110)
Monopolization Horizontal Anticompetitive Practices (L410)
Market Structure: Industrial Organization and Corporate Strategy
(6110)
Business Finance (5210)
Business Administration (5131)
Public Policy Towards Monopoly and Competition (6120)