Merger policy, entry, and entrepreneurship

We assess the impact of merger policy on entry and entrepreneur-ship. When faced with uncertainty about its prospects, and foreseeing that it may wish to leave the market should profitability prove poor, a rational entrant considers possible exit routes. Horizontal merger reduces competition post-merger which, all else being equal, lowers welfare; but merger also provides a valuable exit route. By facilitat-ing exit and thus raising the value of entry, more lenient merger policy may stimulate entry sufficiently that welfare is increased overall. We ∗We would like to thank seminar participants at Birmingham, Cambridge, Essex