Presented By: Applied Microeconomics/Industrial Organization
Applied Microeconomics/IO
Mergers, Innovation, and Entry-Exit Dynamics: The Consolidation of the Hard Disk Drive Industry, 1996-2015 (with Kosuke Uetake) presented by Mitsuru Igami, Yale University
We study the process of industry consolidation with endogenous mergers, innovation, and entry-exit. We develop an empirical model of a dynamic game with a random proposer of merger in each period, 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 simulations feature antitrust policy regimes with alternative tolerance levels of mergers, and highlight a dynamic welfare tradeoff between the ex-post pro-competitive effects of blocking mergers and its negative side effects due to the destruction of ex-ante option values. The results suggest approximately four firms as the optimal regulatory threshold.
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