Merger Control Z

This paper focuses on industries that require intensive investment to compete and innovate well before demand materialises (or fails to do so). In these industries, the existence of exit barriers may cause firms to become “zombies” ex post and result in significant underinvestment ex ante. We first discuss the link between the investment decisions of firms and the existence and significance of exit barriers. Then, we consider the role of mergers as an exit mechanism that promotes efficient investment and fosters competition. We conclude with a discussion about optimal merger policy.