This paper estimates a dynamic oligopoly model to assess the economic consequences
of a horizontal merger that took place in 1970 to create the second largest global producer
of steel. The paper solves a Markov perfect Nash equilibrium for the model and
simulates the welfare effects of the horizontal merger. Estimates reveal that the merger
enhanced the production efficiency of the merging party by a magnitude of 4.1 %, while
the exercise of market power was restrained primarily by the presence of fringe
competitors. Our simulation result also indicates that structural remedies endorsed by the
competition authority failed to promote competition.
|