Bray Theory Workshop

Abstract

We study the process of industry consolidation and its effects on competition, innovation, and welfare. We develop a dynamic oligopoly model of mergers, R&D, and entry-exit, and estimate it using data from the hard disk drive industry. We find mergers became a dominant mode of exit and sometimes generated productivity improvement (i.e., synergies). Our counterfactual simulation highlights dynamic tradeoffs and suggests a more restrictive antitrust regime could reduce welfare because a higher exit rate partially offsets its procompetitive effect, and R&D does not fully make up for the forgone synergies.

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