Dept.f Economics, Northwestern Univ.
2001 Sheridan Rd.
Evanston, IL 60208
NBER Working Papers and Publications
|April 2014||Internal versus External Growth in Industries with Scale Economies: A Computational Model of Optimal Merger Policy|
with Volker Nocke, Mark A. Satterthwaite, Michael D. Whinston: w20051
We study optimal merger policy in a dynamic model in which the presence of scale economies implies that firms can reduce costs through either internal investment in building capital or through mergers. The model, which we solve computationally, allows firms to invest or propose mergers according to the relative profitability of these strategies. An antitrust authority is able to block mergers at some cost. We examine the optimal policy when the antitrust authority can commit to a policy rule and when it cannot commit, and consider both consumer value and aggregate value as possible objectives of the antitrust authority. We find that optimal policy can differ substantially from what would be best considering only welfare in the period the merger is proposed. We also find that the ability t...