Building new plants or entering by acquisition? Firm heterogeneity and entry barriers in the U.S. cement industry

I estimate a model of entry for the cement industry that considers two options of expansion: building a plant or acquiring an incumbent. The model takes into account that there is a transfer of the buyer firm-level characteristics to the acquired plants, which affects profits from the acquisition. E...

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Bibliographic Details
Published in:The Rand journal of economics 2015-09, Vol.46 (3), p.625-649
Main Author: Perez-Saiz, Hector
Format: Article
Language:English
Subjects:
Acquisition costs
Acquisitions
Acquisitions & mergers
Asset allocation
Capital costs
Cement industry
Cements
Construction industry
Consumer surplus
Cost estimates
Cost of entry
Economic models
Economics
Expansion
Incumbents
Marginal costs
Market entry
Mathematical moments
Mergers
Profits
Studies
U.S.A
Variable costs
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Summary:I estimate a model of entry for the cement industry that considers two options of expansion: building a plant or acquiring an incumbent. The model takes into account that there is a transfer of the buyer firm-level characteristics to the acquired plants, which affects profits from the acquisition. Estimates show that a less-permissive Reagan-Bush administration's merger policy would decrease the number of acquired plants by 71%, greenfield entry would increase by 9.2% and consumer surplus would decrease by 23.5%. Results suggest that regulators should be concerned about policies that negatively affect the efficient reallocation of assets between incumbents and entrants.
ISSN:0741-6261
1756-2171
DOI:10.1111/1756-2171.12100