Premium
ENTRY DETERRENCE BY NON‐HORIZONTAL MERGER *
Author(s) -
INNES ROBERT
Publication year - 2006
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/j.1467-6451.2006.00293.x
Subject(s) - commit , competition (biology) , order (exchange) , deterrence theory , industrial organization , marginal cost , business , economics , microeconomics , monetary economics , finance , ecology , physics , database , computer science , nuclear physics , biology
We study when and how pure non‐horizontal mergers, whether cross‐product or vertical, can deter new entry. Organizational mergers implicitly commit firms to more aggressive price competition. Because heightened competition deters entry, mergers can occur in equilibrium even when, absent entry considerations, they do not. We show that, in order to prevent a flood of entrants, mergers arise even when a marginal merger costs incumbent firms more than does a marginal entrant.