Dominant Firms and Mergers

George, Ken; Jacquemin, Alexis

doi:10.2307/2234860

Cited by 12 publications

(7 citation statements)

References 11 publications

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“…Scherer (1980) suggests 40% as a leading firm's market share, while Landes and Posner (1981) suggest 80% or more. The European Union suggest that market share of 80% show clear evidence of dominance and the market share of 40-50% strongly implies the ability to exploit strategic advantage against rivals (George and Jacquemin, 1992). The US merger guidelines contain a "Leading firm proviso" based on a market share of at least 35% (US Department of Justice, 1988).…”

Section: Introductionmentioning

confidence: 99%

Social Efficiency of Entry with Market Leaders

Mukherjee

2012

Economics Manag Strategy

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We offer a new perspective to the social efficiency of entry by considering an industry with a quantity‐setting leader and free entry of followers. We show that entry with homogeneous products can be socially insufficient instead of excessive. In a closed economy, entry is always socially insufficient in the absence of scale economies, and it is socially insufficient in the presence of scale economies if the marginal cost difference between the leader and the followers is large. In an open economy with the foreign leader, entry is always socially insufficient. Thus, we show that entry regulation may not be justified in oligopolistic industries with market leaders.

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Section: Introductionmentioning

confidence: 99%

Social Efficiency of Entry with Market Leaders

Mukherjee

2012

Economics Manag Strategy

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“…And so an increase in the degree of asymmetry causes the low-cost firm to produce more and the high-cost firm to produce less. 8 The condition p * > c 1 + c 2 does not always yield a ready reformulation in terms of parameters and functional forms. It does, however, have a useful reinterpretation in terms of a comparison between costs and equilibrium firm output levels.…”

Section: Non-linear Demandmentioning

confidence: 99%

“…However, joint firm costs are lower, as a relatively efficient firm produces more while a relatively inefficient firm produces less. 1 There is a large body of work using dominant firm models in a variety of contexts; Schmalensee (1987), George and Jacquemin (1992) and Viscusi, Vernon and Harrington (2005) provide partial reviews. 2 Versions of this property of asymmetric Cournot oligopoly are well-known: see, for example, Farrell and Shapiro (1990).…”

Section: Introductionmentioning

confidence: 99%

Price Interventions in a Cournot Oligopoly with a Dominant Firm

Banerjee¹

2007

The B.E. Journal of Theoretical Economics

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We study a Cournot oligopoly with one low-cost (dominant) firm and one or more high-cost (subordinate) firms. If the equilibrium is interior, with all firms producing positive quantity, a reallocation of production relative to the equilibrium point, such that the dominant firm produces more, while the subordinate firms produce less, can increase consumers' surplus, as well as joint firm profit. We show that a price intervention (either a price floor or a fixed price) may help achieve such an improvement. The result hinges on the dominant firm having sufficiently low cost relative to the subordinate firms. for helpful comments. All errors are mine alone.Brought to you by | Simon Fraser University Authenticated Download Date | 6/3/15 1:45 AM We further show in Sections 3.3 and 3.4 that a fixed price intervention can induce a more efficient outcome. With such an intervention, all trade takes place at the set price. To understand the intuition, notice that at any fixed price, a firm can always increase production without fearing a reduction in the price. Thus, compared to the unconstrained environment, a fixed price acts as an implicit production subsidy. This subsidy effect gives all firms an incentive to increase output and, as long as the set price is not too low, leads to equilibrium excess supply. In such a situation, however, increased production by any firm leads to lower probability of sale for other firms. There is thus a substitution effect present in this environment which, as in the unconstrained case, is discriminatory, and relatively benefits the low-cost firm, causing it to produce more than the high-cost firm. The subsidy effect is itself discriminatory, with benefit to a firm decreasing in cost. The relative advantage to the low-cost firm arising from the differential nature of the substitution effect is therefore accentuated by the discriminatory aspect of the subsidy effect. So, compared to the unconstrained outcome, total production can be expanded, and also reallocated. In addition, if the degree of asymmetry between firms is sufficiently high, i.e., if the marginal cost of the low-cost firm as a fraction of the marginal cost of the high-cost firm is sufficiently low, the high cost firm will produce less than at the unconstrained equilibrium outcome. If such an effect arises, and is strong, the intervention can serve to significantly reduce output coming from the high-cost firm and increase that coming from the low-cost firm, yielding efficiency improvements.Suppose then firms are symmetric with unknown marginal costs at a stage prior to production, and suppose also that one firm always develops low marginal cost, relative to the other, at the production stage. Innovation races, for example, often have such a characteristic, with the firm discovering the better innovation developing a significant competitive and cost advantage. A price intervention at the earlier stage then can lead to an ex ante Pareto-improvement, with higher expected consumers' surplus as well as firm profit. 3 We show in Sect...

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“…As such, in concentrated industries, with barriers to entry, major firms possessed the capacity to form and maintain collusive arrangements through adoption of a range of pricing, output and promotional policies ensuring supracompetitive profits. Such a structural approach to policy accepted the causal link between structure, conduct and performance, with action based on the premise that if the state corrected market structure, market conduct and performance would look after themselves (George and Jacquemin, 1992). This prompted the FTC to make decisions based on simple statistical measurements, easing decision-making, where clear-cut rules were troublesome to establish.…”

Section: A Brief History Of Us Antitrust Regulation and Its Impact Onmentioning

confidence: 99%

Regulatory Constrained Portfolio Restructuring: The US Department Store Industry in the 1990s

Wood

2001

Environ Plan A

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The US department store industry has undergone a recent round of strategic acquisition-based portfolio restructuring. This paper analyses one such acquisition, studying how its geography is restructured in the premerger stage to conform to the Federal Trade Commission's 'fix-it-first' policy and to improve the strategic fit of the transaction. The article then investigates evidence, and analyses the effects, of a new era of stricter FTC enforcement, where divestiture may no longer be sufficient in cases of horizontal market overlap. Fundamentally, the paper considers the nature of 'real' regulation in action, as rules partially dictate investment decisions.

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Dominant Firms and Mergers

Cited by 12 publications

References 11 publications

Social Efficiency of Entry with Market Leaders

Social Efficiency of Entry with Market Leaders

Price Interventions in a Cournot Oligopoly with a Dominant Firm

Regulatory Constrained Portfolio Restructuring: The US Department Store Industry in the 1990s

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