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James Babcock's avatar

That's why I qualified the claim with "if merger costs are small compared to barriers to entry". Another way to look at it is, companies use merger acquisitions to subsidize their competitors' exit.

If firm exit were directly subsidized by government, in an industry with barriers to entry, do we agree that *that* would cause excess concentration? And if so, what makes it different when the subsidy comes from a competitor?

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RobinHanson's avatar

Horizontal mergers only temporarily increase concentration, they don't create a new equilibrium with a different concentration.

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