Entry by Merger: Estimates from a Two-Sided Matching Model with Externality

As firms often acquire incumbents to enter a new market, presence of desirable acquisition targets affect both merger and entry decisions simultaneously. We study these decisions jointly by considering a two-sided matching model with externalities to account for the "with whom" decision of merger and to incorporate negative externalities of post-entry competition. By estimating this model using data on commercial banks, we investigate the effect of the entry deregulation by the Riegle-Neal Act.