On Mergers and Agglomeration

We formulate a model of mergers and acquisitions assuming a monopolistic competitive industry that exhibits agglomeration economies. We provide the conditions for the existence of a non‐trivial Nash equilibrium in the acquisition market at which the most productive firm acquires a range of less‐productive firms. Most importantly, we show that domestic merger and acquisition activities are international trade promotionary. We also show that such types of mergers and acquisition will improve the competitive position of foreign firms leading to an increase in their market share. In addition, domestic mergers and acquisitions will increase the number of imported varieties.     

Australian Company Mergers 1960-1970*

This study recorded 340 international mergers and 1992 domestic mergers in Australia in the period mid 1959-December 1970. In the 1,460 mergers for which price information was available, the total merger value amounted to $2,283.3 million. The merger movement was most intensive in the later years of the period, with $1,034.8 million being paid for 429 firms during 1968-1970. This compares with some 1,157 mergers transacted at a total cost of $558.4 million recorded by Mr Bushnell [2] in the period 1947-to mid 1959.²³ While mergers took place in almost all industries, they were not uniformly distributed. More than two-thirds of foreign take-overs occurred in manufacturing, compared with less than one-half of domestic mergers in manufacturing. Foreign companies have purchased the largest or leading Australian firms in their respective industries. Moreover, United States take-overs were important in basic chemicals and flour mill and cereal products; on the other hand, United Kingdom take-overs were prominent in beverages and malt, other industrial machinery and fabricated metal products. Among the foreign acquiring companies, merger activity was more concentrated in United Kingdom-based companies than among United States-based companies. For the period as a whole, domestic take-overs outnumbered foreign take-overs by more than 5·5 to 1. In examining the limited evidence for foreign take-over activity in the period 1946-59,²⁴ it is apparent that foreign firms have accounted for a much higher share of merger activity during the nineteen-sixties. In addition, mergers overseas have brought together the Australian subsidiaries of the merging companies. Mr Bushnell [2] rated the tax structure including all its ramifications as probably the single most important cause for mergers.²⁵ While tax factors have continued to play an important role in merger activity, it appears that, during the sixties, a far more important reason for mergers in many industries has been the so-called proliferation effect of mergers. As some firms, especially the multinationals, took over leading local companies making for cost and competitive advantages, invariably the smaller remaining independent firms were compelled to resort to mergers for defensive reasons. The owners of many of these firms, fearing a war of attrition, took advantage of avoiding risks by capitalizing future profits in the form of tax-free capital gains, by selling out before a situation emerged where their bargaining power would have been seriously eroded. Most of these firms disappearing into mergers, did so with partners closely related to their existing operations. Approximately three-fourths of domestic and foreign take-overs were of the broad horizontal class.     

Mergers and Trade Policy under Oligopoly

For an oligopolistic industry, the effects of mergers on the domestic country's optimal trade policy are analyzed. If the domestic country pursues an optimal trade policy then it will always lose as a result of a foreign merger. The optimal domestic response to a foreign merger is to decrease (increase) the tariff if demand is concave (convex) and to increase the production subsidy. The foreign merger reduces foreign welfare when the domestic country pursues its optimal trade policy. The optimal domestic response to a domestic merger is to leave the tariff unchanged and to increase the production subsidy.     

MERGERS, CAPITAL GAINS, AND PRODUCTIVITY: EVIDENCE FROM U.S. TELECOMMUNICATIONS MERGERS

The article examines the effects of two horizontal mergers on the performance of the respective operating companies. The effects of the mergers are investigated by comparing the performance of the merging companies with a control group of nonmerging companies and also the performance of the merging companies before and after merger. The article concludes that mergers did not produce net economies of scale, did not lead to substantial productivity growth or cost reduction, and did not generate significant shareholder wealth effects. It is, to the authors' knowledge, the first study of mergers that combines the analysis of productivity and cost effects, on one hand, with an examination of the effects on financial variables, on the other hand. (JEL L11 , L9 )     

Trade Liberalization and the Profitability of Domestic Mergers

It is often thought that a tariff reduction, by opening‐up the domestic market to foreign firms, should lessen the need for a policy aimed at discouraging domestic mergers. This implicitly assumes that the tariff in question is sufficiently high to prevent foreign firms from selling in the domestic market. However, not all tariffs are prohibitive, so that foreign firms may be present in the domestic market before it is abolished. Furthermore, even if the tariff is prohibitive, a merger of domestic firms may render it nonprohibitive, thus inviting foreign firms to penetrate the domestic market. Using a simple example, the authors show that, in the latter two cases, abolishing the tariff may in fact make the domestic merger more profitable. Hence trade liberalization will not necessarily reduce the profitability of domestic mergers.     

Brotherhood of competition: Foreign Direct Investment and domestic mergers

We examine the effects of mergers on Foreign Direct Investment (FDI), and on shaping national policies regarding FDI. In this work we develop a partial equilibrium model of an oligopolistic industry in which a number of domestic and foreign firms compete in the market for a homogeneous good in a host country. It is assumed that the number of foreign firms is endogenous and can be affected by the government policy in the host country. The government sets the policy (subsidies) to maximise social welfare. We allow domestic mergers. Our main results suggest that when the host country government imposes discriminatory lump-sum subsidy in favor of foreign firms, a merger of domestic firms will increase the number of FDI if the subsidy level is exogenous. With an endogenous level of subsidy, a merger of domestic firms will decrease (increase) the welfare if the domestic firms are more (less) efficient.     

Do city–county mergers in China promote local economic development?

Municipal mergers have become a worldwide phenomenon in the past few decades, primarily advanced to exploit economies of scale. While most evaluations of municipal mergers have focused on the efficiency of local public goods provision, it is rare in the literature to explore how such mergers promote economic growth in a developing country context. This research investigates the economic consequences of a policy experiment of city–county mergers (che xian she qu) in China during the period 2000–2004. Using comprehensive datasets at city, county and firm levels, we present evidence that the merger significantly increases local economic development, and the magnitude of the effect depends on local endowments related to agglomeration forces. The results are robust to a number of different model specifications. We further verify that improved transport infrastructure and urban agglomeration economies after merger are potential contributors to the positive merger effects.     

Export orientation and domestic merger policy: theory and some empirical evidence

Abstract.  Recent 'open‐economy industrial organization' literature finds export orientation enhances the weight of post‐merger international competitive gains, favouring lenient domestic merger policy. However, mergers seldom generate the 'significant synergies' supportive of international competitive gains. Since a joint‐economies‐of‐production effect suggests domestic mergers tend to generate international competitive losses (not gains), export orientation favours strict (not lenient) domestic merger policy. We show how non‐synergistic domestic mergers in the presence of international sales might reduce national welfare and incur stringent merger reviews. A panel data set of U.S. merger policy by manufacturing sector, 1990–2001, empirically supports export orientation, leading to strict merger policy. JEL classification: L40, F10     

Cross-border mergers in vertically related industries

We construct a tractable model of an oligopolistic industry that allows us to capture the role of the vertical structure in the incentives for and implications of cross-border horizontal mergers. We show that vertical integration can increase the gains from cross-border mergers. We also demonstrate how market concentration interacts with costs in the decision of a relatively efficient foreign firm located in one country (source) to merge with a disintegrated or an integrated firm in another country (target) when the industry is vertically related. Absent any merger incentives in an autarkic equilibrium, we demonstrate that vertical integration can raise the incentives for diversification in production and add to the gains from cross-border horizontal mergers. Any additional gain from cross-border horizontal mergers, due to the existence of a vertically integrated production structure, is shown to be sensitive to the relative market concentration across countries. Cross-border mergers will be triggered by a relatively cost-efficient source taking over a disintegrated target when pre-merger competition among the disintegrated firms is relatively intense but, otherwise, the initial target will be a vertically integrated firm.     

Monopolization through endogenous vertical mergers

While endogenous merger analysis has been applied to horizontal mergers, the thrust of vertical merger analysis has been based on exogenous mergers. The goal of this paper is to analyze endogenous vertical mergers. I consider a market structure with a downstream monopolist and an oligopolistic upstream industry. The downstream monopolist chooses to buy a certain number of the upstream firms. Mergers are endogenous, in the sense that the bids made by the downstream firm must be accepted by each of the integrated upstream firms, and must not exceed the increase in the profits of the downstream firm. It is shown that the unique equilibrium is complete monopolization: the buyer buys all the firms in the upstream industry. This result is consistent with the result that vertical mergers are profitable. However, it is in contrast with horizontal endogenous mergers, where complete monopolization is generally not an equilibrium.     

Modelling money demand in open economies: the case of selected Asian countries

While early work on money demand estimation focused primarily on the importance of domestic variables, many studies in later years have suggested that foreign variables also influence the domestic demand for money in an open economy. With the rapid financial market liberalization in some of the Asian economies in the last couple of decades, open economy factors have become very important in the determination of money demand. Therefore, this paper aims to ascertain the degree to which foreign opportunity cost variables influence money demand in the Philippines, Singapore and South Korea. Cointegration analysis is performed and an error correction model estimated using quarterly time-series data. The empirical results support the inclusion of foreign opportunity cost variables in the money demand function.     

Internal and external balance in a centrally planned economy

This paper presents a model of an open centrally planned economy. In a framework that allows disequilibrium and (informal) quantity rationing, we seek to represent both the effects of domestic macroeconomic processes on trade flows and the effects on domestic macro variables of foreign-sector phenomena. We investigate the adjustment of the system to exogenous shocks and the policy trade-offs facing the planners, using a diagrammatic apparatus analogous to the Swan and Mundell diagrams for an open developed market economy. The model is also intended to serve as a basis for specification of empirical models of the macroeconomic aspects of foreign trade in centrally planned economies.     

Mergers in asymmetric Stackelberg markets

It is well known that the profitability of horizontal mergers with quantity competition is scarce. However, in an asymmetric Stackelberg market we obtain that some mergers are profitable. Our main result is that mergers among followers become profitable when the followers are inefficient enough. In this case, leaders reduce their output when followers merge and this reduction renders the merger profitable. This merger increases price and welfare is reduced.      

Intersectoral and International R&D Knowledge Spillovers and Total Factor Productivity

Disaggregate panel data estimates are presented of equations that relate a set of OECD countries' sectoral total factor productivity to domestic and to foreign R&D capital. The estimates indicate that there are both important international and national R&D knowledge spillovers and that these spillovers are intersectoral and intrasectoral in nature. They show that the influence of domestic R&D is stronger in the large economies and that this is caused by more important domestic intersectoral R&D spillovers. There is also evidence of a greater influence of domestic and of foreign R&D in research intensive industries and of an interaction between the domestic economy scale and the research intensity effects.     

基于EVA的我国上市公司并购绩效实证研究

目前,国内外学术界关于并购问题的研究主要集中在并购源泉理论、并购动机、并购方式、并购整合、并购监管、并购功能以及并购的发展趋势等几个方面,而对并购绩效的研究相对较少,这在一定程度上制约了并购理论研究体系的健全和完善,不利于对并购事件进行全面研究评价,因此,开展并购绩效的研究非常必要和迫切.     

HORIZONTAL MERGERS IN A DIFFERENTIATED COURNOT OLIGOPOLY

Using a standard differentiated goods quantity competition setting, we show three facts about horizontal two‐firm mergers that are not true for a homogeneous goods Cournot market. First, merger of two firms is profitable for the merging firms provided that goods are sufficiently distant substitutes. Second, merging of two firms can lead to more two‐firm mergers. Third, an initially non‐profitable two‐firm merger can occur in anticipation of subsequent mergers. These facts imply that mergers are more likely to occur in differentiated goods markets than in homogeneous goods markets.     

The Role of Undertakings in Regulatory Decision-Making

The Australian Competition and Consumer Commission (ACCC) has powers under the Trade Practices Act 1974 (Cwlth) to accept undertakings from industry participants interested in taking actions, such as mergers, that may potentially be anticompetitive. This paper analyses the role of undertakings, focusing on horizontal mergers. We demonstrate that undertakings can provide an imperfectly in-formed regulator with a credible signal of the positive social benefits of a proposed merger. In particular, if the merged parties undertake not to reduce their output following the merger, then the merger will only be proposed if it results in net social benefits. We discuss the practical issues of implementing a behavioural undertaking such as a minimum quantity commitment, and argue that these are no less difficult than other regulatory activities currently pursued by the ACCC.     

Mergers and capital flight in unionised oligopolies: Is there scope for a “national champion” policy?

Many policy makers seem to prefer domestic alternatives to cross-border mergers. We construct a model where cross-border mergers drive down union-set wages, domestic mergers have non-labour cost synergies and policy evaluators care more about workers than capital owners. Apparently, the stage is set for “national champion” policies to be sensible. However, we also introduce the possibility of capital flight by allowing a domestic firm to move production abroad. Restrictive cross-border merger policies can then seriously backfire, since they do not necessarily bring about a domestic merger — but capital flight instead.     

The welfare economics of dominant-firm acquisitions

Conclusion The main results of this paper provide some analytic underpinning for a strict horizontal merger policy relating to dominant firms. However, even under standard assumptions, examples have been demonstrated where dominant/fringe firm mergers increase welfare. Most of these examples imply shutting down acquired facilities, a practice regarded as unfavorable evidence by the court in theStandard Oil case; consequently, they do not by themselves seem to offer much hope for raising economies as an antitrust defense. Finally, it should be noted that this paper has considered only single-product economies; economies of scope arising in multi-product (and multi-market) contexts could be large enough to justify dominant/fringe firm mergers⁹.An earlier version of this paper was presented at the Economic Policy Office seminar, Antitrust Division, U. S. Department of Justice. The author is grateful to Marius Schwartz, other seminar participants and an anonymous referee of this journal for helpful comments. M. Daniel Westbrook and Brian Flynn kindly arranged for the calculations reported in Appendix C.     

Privatization and Strategic Mergers across Borders

We present a theoretical model to capture the role of privatization in the incentives for and implications of cross‐border horizontal mergers. Absent any merger incentives in an autarkic equilibrium, we show that a decrease in the degree of privatization will lower the incentives for diversification of international production. The incentives for diversification for any given degree of privatization will fall when the private and public firms are allowed to move sequentially rather than simultaneously. The presence of the public firm also introduces a new source of asymmetry in the incentives for cross‐border mergers: a reduction in the degree of privatization at home will dampen the potential gains from a take‐over of a home firm by a foreign firm but magnify the potential gains from a take‐over of a foreign firm by a home firm.