Discussion Papers 2025

CIRJE-F-1264	"Investment Dynamics and Merger Policy: Long-run Effects of Horizontal Merger in Oligopolistic Market"
Author Name	Fukasawa, Takeshi and Hiroshi Ohashi
Date	December 2025
Full Paper	PDF File
Remarks

Abstract
This paper evaluates long-run effects of a horizontal merger and its remedies in a capital-intensive industry. It estimates a dynamic oligopoly model with continuous investment, enabled by a computationally efficient simulation algorithm. A decomposition of investment incentives shows that static forces dominated dynamic considerations. The merger, despite raising prices, increased social welfare, primarily through efficiency gains. The analysis also finds that divestiture remedies had persistent effects lasting nearly two decades, and that optimal remedy design differs markedly depending on whether consumer or social welfare is used as the evaluative standard.
Keywords: Horizontal Merger, Structural Remedies, Dynamic Oligopoly, Spectral Algorithm, Smolyak Method

Abstract

This paper evaluates long-run effects of a horizontal merger and its remedies in a capital-intensive industry. It estimates a dynamic oligopoly model with continuous investment, enabled by a computationally efficient simulation algorithm. A decomposition of investment incentives shows that static forces dominated dynamic considerations. The merger, despite raising prices, increased social welfare, primarily through efficiency gains. The analysis also finds that divestiture remedies had persistent effects lasting nearly two decades, and that optimal remedy design differs markedly depending on whether consumer or social welfare is used as the evaluative standard.

Keywords: Horizontal Merger, Structural Remedies, Dynamic Oligopoly, Spectral Algorithm, Smolyak Method