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Merger policy, entry, and entrepreneurship

Mason, Robin and Weeds, Helen (2013) 'Merger policy, entry, and entrepreneurship.' European Economic Review, 57 (C). pp. 23-38. ISSN 0014-2921

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Abstract

We assess the impact of merger policy on entry and entrepreneurship. When faced with uncertainty about its prospects, and foreseeing that it may wish to leave the market should profitability prove poor, a rational entrant considers possible exit routes. Horizontal merger reduces competition post-merger which, all else being equal, lowers welfare; but merger also provides a valuable exit route. By facilitating exit and thus raising the value of entry, more lenient merger policy may stimulate entry sufficiently that welfare is increased overall. We calculate the optimal merger policy in the form of a low, but positive, profitability threshold below which merger is permitted despite the adverse impact on post-merger competition. This may be viewed as an extension of the “failing firm defence” to include ailing, low profitability firms as well as imminently failing ones. Merger policy is compared with an entry subsidy, and the implications of strategic firm behaviour for the choice of merger policy are also examined.

Item Type: Article
Uncontrolled Keywords: Merger policy; Entry; Exit; Entrepreneurship
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Social Sciences > Economics, Department of
Depositing User: Jim Jamieson
Date Deposited: 28 Mar 2013 10:55
Last Modified: 26 Feb 2016 10:05
URI: http://repository.essex.ac.uk/id/eprint/5943

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