Internal versus external growth in industries with scale economies: A computational model of optimal merger policy

Ben Mermelstein, Volker Nocke, Mark A. Satterthwaite, Michael D. Whinston

Research output: Contribution to journalArticlepeer-review

3 Scopus citations

Abstract

We study merger policy in a dynamic computational model in which firms can reduce costs through investment or through mergers. Firms invest or propose mergers according to the profitability of these strategies. An antitrust authority can block mergers at some cost. We examine the optimal policy for an antitrust authority that cannot commit to its future policy and approves mergers as they are proposed. We find that the optimal policy can differ substantially from a policy based on static welfare. In general, antitrust policy can greatly affect firms’ investment behavior, and firms’ investment behavior can greatly affect the optimal antitrust policy.

Original languageEnglish (US)
Pages (from-to)301-341
Number of pages41
JournalJournal of Political Economy
Volume128
Issue number1
DOIs
StatePublished - Jan 1 2020

ASJC Scopus subject areas

  • Economics and Econometrics

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