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Acquisitions versus Entry: The Evolution of Concentration


Aydemir, Zava; Schmutzler, Armin (2002). Acquisitions versus Entry: The Evolution of Concentration. Working paper series / Socioeconomic Institute No. 208, University of Zurich.

Abstract

We consider market dynamics in a reduced form model. In the simplest version, there are two investors and several small noninvesting firms. In each period, one investor can acquire a small firm, the other investor decides about market entry. After that all firms play an oligopoly game. We derive conditions under which increasing market concentration arises with myopic firms, we show that a model with forward-looking firms and with arbitrary numbers of investors yield similar results. We apply the framework to a Cournot model with cost synergies and a Bertrand model where acquisitions extend the product spectrum of a firm.

We consider market dynamics in a reduced form model. In the simplest version, there are two investors and several small noninvesting firms. In each period, one investor can acquire a small firm, the other investor decides about market entry. After that all firms play an oligopoly game. We derive conditions under which increasing market concentration arises with myopic firms, we show that a model with forward-looking firms and with arbitrary numbers of investors yield similar results. We apply the framework to a Cournot model with cost synergies and a Bertrand model where acquisitions extend the product spectrum of a firm.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Socioeconomic Institute (former)
Dewey Decimal Classification:330 Economics
JEL Classification:D43, L11, L12, L13
Language:English
Date:August 2002
Deposited On:29 Nov 2011 22:32
Last Modified:05 Apr 2016 15:11
Series Name:Working paper series / Socioeconomic Institute
Official URL:http://www.econ.uzh.ch/wp.html
Permanent URL: http://doi.org/10.5167/uzh-52166

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