-equilibrium model that features mergers, entry, and exit by heterogeneous firms. Mergers affect productivity directly through realized … firms' entry and exit decisions. We show that ignoring the implications of merger activity for public policies that promote … synergies, and indirectly through firms' incentives to enter or exit the industry. Merger activity increases average firm …

According to the well-known "merger paradox", in a Cournot market game mergers are generally unprofitable unless most … firms merge. The present paper proposes an optimal merger mechanism. With this mechanism mergers are never unprofitable …