I analyze the effects of a merger between two firms in a differentiated-goods duopoly. I make the crucial assumption that the industry is at a free-entry equilibrium both before and after the merger. In particular, I allow for the possibility of entry subsequent to the merger. Not surprisingly,...

The received wisdom is that sunk costs create a barrier to entry if entry fails, then the entrant, unable to recover sunk costs, incursgreater losses. In a strategic context where an incumbent may prey on the entrant, sunk entry costs have a countervailing effect: they may effectively commit the...