- Mergers, strategic investments and antitrust policy
- Managerial and Decision Economics
- Pages (from-to)
- Document type
- Faculty of Economics and Business (FEB)
- Amsterdam School of Economics Research Institute (ASE-RI)
Established firms can diversify into new markets in two distinct modes: through internal development or through conglomerate merger. Building on a dynamic three-stage bargaining model with variable threats, this paper shows that a lenient antitrust position toward horizontal mergers can induce established firms that would otherwise not have entered to enter via conglomerate merger. The vigor of antitrust enforcement toward horizontal mergers also affects the conglomerate acquisition price but it does not influence the choice of entry mode. Finally, the paper brings to light a heretofore neglected avenue through which conglomerate mergers can increase welfare.