The Mini-Case “Are Monopoly Mergers Harmful?” states that there are about 5,000 ready-mix concrete plants in the United States. With so many plants in operation, why should we worry that mergers may create monopoly power? Explain why the speed of entry is important in assessing the cost of mergers that create a monopoly.

Are Monopoly Mergers Harmful

Why should governments worry about mergers that create monopolies? Won’t the resulting higher price and profit attract new firms into the market? That argument makes sense if firms do not have to incur substantial sunk costs to enter and the market has no other entry barriers. But, if new firms are unlikely to enter, then governments should worry about mergers. Thus, in judging whether to permit a merger, governments consider the difficulty of entry. Collard-Wexler (2014) provided an example of why entry is important in the ready-mix concrete industry. Although the United States has about 5,000 ready-mix concrete plants, few of them directly compete. Given high shipping costs, the country has at least 449 small, local markets. New plants must incur substantial, sunk entry costs. He found that it takes nine to ten years for a new firm to enter the market following a merger to monopoly. Thus, if the only two firms in a local market merge, the resulting firm can earn monopoly profits for the better part of a decade, generating damages nearly eight times those from one year of monopoly.