Mergers and Sunk Costs: An Application to the Ready-Mix Concrete Industry
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Abstract
Horizontal mergers have a large impact by inducing a long-lasting change in market structure. Only in an industry with substantial entry barriers is a merger not immediately counteracted by post-merger entry. To evaluate the duration of the effects of a merger, I use the model of Abbring and Campbell (2010) to estimate demand thresholds for entry and for exit. These thresholds, along with the process for demand, are estimated using data from the ready-mix concrete industry. Simulations predict that a merger from duopoly to monopoly generates between 9 and 10 years of monopoly in the market.Citation
Collard-Wexler, Allan. 2014. "Mergers and Sunk Costs: An Application to the Ready-Mix Concrete Industry." American Economic Journal: Microeconomics, 6 (4): 407-47. DOI: 10.1257/mic.6.4.407Additional Materials
JEL Classification
- G34 Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance
- K21 Antitrust Law
- L12 Monopoly; Monopolization Strategies
- L13 Oligopoly and Other Imperfect Markets
- L41 Monopolization; Horizontal Anticompetitive Practices
- L61 Metals and Metal Products; Cement; Glass; Ceramics
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