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Mergers and Sunk Costs: An Application to the Ready-Mix Concrete Industry †

Mergers and Sunk Costs: An Application to the Ready-Mix Concrete Industry † 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 nine and ten years of monopoly in the market. (JEL G34, K21, L12, L13, L41, L61 ) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Microeconomics American Economic Association

Mergers and Sunk Costs: An Application to the Ready-Mix Concrete Industry †

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Publisher
American Economic Association
Copyright
Copyright © 2014 by the American Economic Association
Subject
Articles
ISSN
1945-7685
eISSN
1945-7685
DOI
10.1257/mic.6.4.407
Publisher site
See Article on Publisher Site

Abstract

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 nine and ten years of monopoly in the market. (JEL G34, K21, L12, L13, L41, L61 )

Journal

American Economic Journal: MicroeconomicsAmerican Economic Association

Published: Nov 1, 2014

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