Horizontal mergers and divestment dynamics in a sunset industry

Masato Nishiwaki

Research output: Contribution to journalArticle

Abstract

Industries with declining demand tend to be riddled with chronic excess capital due to the presence of a business-stealing effect and fixed costs. This article highlights the potential of mergers to internalize this business-stealing effect and thereby promote divestment. Using the case of mergers in the Japanese cement industry, it examines whether such merger-induced divestment improves total welfare based on a dynamic model of divestment. The findings suggest that merged firms indeed tended to reduce capital more actively and that, as a result of these mergers, total welfare improved despite a reduction in the consumer surplus.

Original languageEnglish
Pages (from-to)961-997
Number of pages37
JournalRAND Journal of Economics
Volume47
Issue number4
DOIs
Publication statusPublished - 2016 Dec 1

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ASJC Scopus subject areas

  • Economics and Econometrics

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