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The Welfare Effect of Entry Induced by Antitrust Regulation

Working Paper 197 | Published April 1, 1982

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Author

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Michael J. Stutzer Professor of Finance, University of Iowa

The Welfare Effect of Entry Induced by Antitrust Regulation

Abstract

Antitrust regulators often attempt to prevent proposed corporate market-extension mergers or acquisitions by arguing that doing so will result in the proposer entering the market as an additional, smaller, independent competitor. In cases where this so-called doctrine of probable future competition is valid, regulators still need guidance in ranking the priority of cases to pursue. This paper modifies the approach of Dansby and Willig to compute measures of the gross benefits arising from valid regulation. Such measures relate the change in consumer plus producer surplus caused by regulation, to measures of market concentration, firm conduct assumptions, small firm profits, and market demand data.