TY  - JOUR
AU  - Gowrisankaran,Gautam
AU  - Holmes,Thomas J.
TI  - Do Mergers Lead to Monopoly in the Long Run? Results from the Dominant Firm Model
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 9151
PY  - 2002
Y2  - September 2002
UR  - http://www.nber.org/papers/w9151
L1  - http://www.nber.org/papers/w9151.pdf
N1  - Author contact info:
Gautam Gowrisankaran
Professor of Economics
Department of Economics
University of Arizona
P.O. Box 210108
Tucson, AZ 85721-0108
Tel: 520/621-2529
Fax: 520/621-8450
E-Mail: gowrisankaran@eller.arizona.edu

Thomas J. Holmes
Department of Economics
University of Minnesota
4-101 Hanson Hall
1925 Fourth Street South
Minneapolis, MN 55455
Tel: 612/625-4512
Fax: 612/624-0209
E-Mail: holmes@umn.edu
AB  - Will an industry with no antitrust policy converge to monopoly, competition, or somewhere in between? We analyze this question using a dynamic dominant firm model with rational agents, endogenous mergers, and constant returns to scale production. We find that perfect competition and monopoly are always steady states of this model, and that there may be other steady states with a dominant firm and a fringe co-existing. Mergers are likely only when supply is inelastic or demand is elastic, suggesting that the ability of a dominant firm to raise price, through monopolization is limited. Additionally, as the discount factor increases, it becomes harder to monopolize the industry, because the dominant firm cannot commit to not raising prices in the future.
ER  -