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Unformatted text preview: t. industry. Consider a publishing house that produces books and Consider newspapers. newspapers. One year it may make most sales with books. Then it will One be in the „print media“ industry. be The other year, it may make most sales with The newspapers. Then it will be in the „daily press“ industry. The industry classification scheme may matter The Problem with comparability over time. 11 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 Ability existence of rivals to which consumers can switch switch The 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. be 12 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 Firms pre-merger time, may do so, if price levels increase. pre-merger Depends 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 Note: could enter and if so when… could when 13 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 higher 14 14 Buyer power Strong Strong buyers can threaten to withdraw withdraw orders from one seller and use another one 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 In should NOT be compared with the ex-ante situation, BUT with the situation after the failing firm would have exited. failing 16 16 Failing Firm Defence In U.S. Merger Guidelin...
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