Mergers and the evolution of industry concentration: Results from the dominant-firm model

Gautam Gowrisankaran, Thomas J. Holmes

Research output: Contribution to journalArticle

33 Scopus citations

Abstract

To what extent will an industry in which mergers are feasible tend toward monopoly? We analyze this question using a dynamic dominant-firm model with rational agents, endogenous mergers, and constant returns to scale production. We find that long-run industry concentration depends upon the initial concentration. A monopolistic industry will remain monopolized and a perfectly competitive industry will remain perfectly competitive. For intermediate concentration levels, the dominant firm may acquire or sell capital, depending on its ability to commit to future behavior Industry evolution also depends on the elasticities of demand and supply and the discount factor.

Original languageEnglish (US)
Pages (from-to)561-582
Number of pages22
JournalRAND Journal of Economics
Volume35
Issue number3
DOIs
StatePublished - Jan 1 2004
Externally publishedYes

ASJC Scopus subject areas

  • Economics and Econometrics

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