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Consider a publishing house that produces books and
One year it may make most sales with books. Then it will
be in the „print media“ industry.
The other year, it may make most sales with
newspapers. Then it will be in the „daily press“ industry. The industry classification scheme may matter
The Problem with comparability over time.
11 Market Shares / Capacity If
If firms with small market shares merge, it
is unlikely that detrimental effects arise.
is Ability to raise prices is limited by
existence of rivals to which consumers can
The larger the unused production capacities
of rivals, the less likely the merged firm will be
able to increase prices. All consumers could
be served by rivals.
12 Entry Ability
Ability to raise prices is limited by the existence
of potential entrants.
potential Theory of contestable markets Firms that found it unprofitable to enter industry in
pre-merger time, may do so, if price levels increase.
Depends on fixed sunk cost: the higher these,
the higher is scope for price increase.
the Note: difficult to find out in practice whether firms
could enter and if so when…
13 Demand Switching
Switching cost: e.g. mobile phone
providers consumers less likely to
switch in case of price increase.
switch the lower the demand elasticity, the
higher the scope for raising prices
14 Buyer power Strong
Strong buyers can threaten to withdraw
withdraw orders from one seller and use
another start upstream production themselves 15
15 Failing Firm Defence Consider
Consider a firm that will – in absence of
the merger – probably exit the market
soon (does not survive in industry)
soon In this case, the ex-post merger situation
should NOT be compared with the ex-ante
situation, BUT with the situation after the
failing firm would have exited.
16 Failing Firm Defence In U.S. Merger Guidelin...
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- Spring '13
- Economics, HHI