摘要：In this paper, we show that the “Merger Paradox” (Salant, Switzer and Reynolds, 1983) ismitigated when capacity constraint is considered. This is because outside firms who do notparticipate in a merger cannot expand their output beyond their existing capacity, and therefore,Stigler type of free riding is alleviated. When overcapacity is socially costly, it is also shownthat a pro-merger fiscal policy may discourage ex ante capacity investment and hence alleviateovercapacity, if capacity building is not too costly. Furthermore, it can be shown that theoptimal pro-merger subsidy is always welfare improving when it discourages capacity building.
