Horizontal mergers, entry, and efficiency defences

In standard models of Cournot competition, it is well-known that if large-scale entry is impossible, then any merger failing to create technological synergies must harm consumers through a higher price level. This paper shows that this is true irrespective of entry conditions: any profitable Cournot merger failing to generate synergies must raise price, even if large-scale entry is possible or if the merger allows the avoidance of fixed cost duplication.     

HORIZONTAL MERGERS,STRUCTURAL REMEDIES,AND CONSUMER WELFARE IN A COURNOT OLIGOPOLY WITH ASSETS*

Competition authorities sometimes require that firms divest some of their assets to rivals in order to allow a merger to take place. This paper extends the results of Farrell and Shapiro [1990a] and shows that, in the absence of technological synergies, a merger is highly unlikely to benefit consumers, even if it is subjected to appropriate structural remedies. For instance, a merger may ultimately lead to a lower price only if at least two different firms acquire the divested assets, and if the merging parties had relatively important pre‐merger market shares.     

MERGER, EASE OF ENTRY AND ENTRY DETERRENCE IN A DYNAMIC MODEL

We analyze whether ease and speed of entry can mitigate the anti-competititve effects of a merger, in a dynamic model of endogenous merger. In our model, if new firms can enter quickly, it is more likely that merger is motivated by efficiency as opposed to increased market power. Thus, there is less reason to challenge the merger. On the other hand, if entry of new firms becomes less costly, firms may have a stronger incentive to monopolize the industry through horizontal merger. We also show that when the incumbent can engage in entry deterrence activities, anti-merger policy can decrease welfare.     

Efficiencies,market power and horizontal merger

In June 1982 the Justice Department issued itsMerger Guidelines which specify in terms of the Herfindahl index (H) what combinations of merger size and post-merger H are likely to lead to a merger challenge. This paper assesses theseGuidelines using Williamson's (1968) well-known model in which an optimal merger policy is viewed as one that considers both the price and cost consequences of merger. The Williamson model is recast in terms of H and changes in H and linked to theGuidelines. This allows an assessment of the welfare congequences of an industry merger for any given level of concentration and merger-produce changes in concentration. Among the conclusions are that, consistent with theGuidelines, higher values of H make socially successful mergers less likely, and a more appropriate, if perhaps not more feasible, focus for theGuidelines are coordination adjusted measures of concentration and merger size.     

Mergers with future rivals can boost prices,bar entry,and intensify market concentration

It is theoretically shown that mergers between incumbents and future rivals can boost prices and harm consumers. But in the absence of empirical evidence, no merger has been litigated on this basis. To offer empirical insights, I study the acquisition case of a promising future rival by a large incumbent pharmaceutical firm. First, there is strong and causal evidence that the merger has enabled higher prices for the incumbent. Mergers with future rivals are practically unregulated and, if wisely exploited, they can circumvent antitrust enforcement and serve as entry barriers. Second, in contrast to the mainstream prediction that mergers with future rivals do not alter market concentration, I report a large post-merger increase in the market concentration. I introduce advertisement expenditure as a possible channel of effect between the merger and market concentration. Third, I document spillover effect of the merger on the incumbent's immediate rivals without affecting its distant rivals.     

Ten years of Merger Guidelines: A retrospective,critique, and prediction

The period since the 1982 Merger Guidelines is surveyed and assessed, including the 1992 Merger Guidelines. The 1982 Guidelines were an improvement in economic underpinnings and in merger policy, but the Guidelines' focus on short run market power is not a sensible basis for merger policy. The 1992 Guidelines continue this focus on short run market power, attempt to provide some clarifications of current enforcement policy, but add some questionable economics to the stew. The merger policy laid out in the 1992 Guidelines will not survive, since it does not suitably come to grips with the fundamental bases of the social costs and benefits of mergers and ignores ‘competitiveness’ issues.     

Entry-timing,business groups and early-mover advantage within industry merger waves in emerging markets: A study of Indian firms

Merger waves are periods of intense and concentrated merger activity which exhibit a wave-like pattern. Drawing upon the resource-based view, we examine the timing of entry and early-mover advantage within merger waves. Following a robust simulation-based methodology of wave analysis, we identify merger waves in eight industries during the time period 2000–2014. Firms affiliated to business groups were found to be early movers. A higher degree of internationalization is also associated with early movement of a firm. Within business groups, their multi-entity character is positively associated with early entry whereas their board interlock was negatively related with entry-timing. Further, early moving acquirers reap superior post-acquisition performance, thereby suggesting that early-mover advantages exist within merger waves.     

Post-merger Price Dynamics Matters,So Why Do Merger Retrospectives Ignore It?

Review of Industrial Organization - The overwhelming majority of retrospective merger studies pool the post-merger data to estimate the average price effect of the merger. Pooled post-merger...     

Merger law,policy, and enforcement guidelines in Canada

The paper describes Canada's merger law, policy, and enforcement activity. The contents of Canada's recently issuedMerger Enforcement Guidelines are explained, analyzed, and compared to the U.S. Merger Guidelines. The roles of concentration, market share, entry conditions, and efficiency defenses in Canadian merger cases are assessed. Reference is made to some recent decisions of Canada's Competition Tribunal, a body created as a part of the major competition policy reforms contained in the 1986 Competition Act.     

Mergers,acquisitions, and the pruning of managerial deadwood

This research investigates the role that mergers and acquisitions may play in the disciplining of entrenched and inefficient managers. The relationship between a company's performance history and its subsequent top management turnover is assessed for a sample of target companies, their parents, and a control group of companies not involved in merger and acquisition activity. The results reveal that target company top management turnover is higher than ‘normal’ in the 2 years immediately following a merger or acquisition, but there is no relationship between previous target company performance and its subsequent top management turnover. Further analyses indicate that first-year target company turnover rates are associated with a history of relatively poor parent company performance, while second-year turnover rates are associated with a history of relatively good parent company performance.     

Ex post Merger Evaluation in the U.K. Retail Market for Books

This paper evaluates the price effects of the merger of two major U.K. book retailers. We use a dataset containing monthly scanner data on a sample of 200 books in 50 local markets for four years around the merger. We compare the price changes after the merger in shops located in areas where both chains were present before the merger and in areas where only one chain was present. We also investigate the country‐wide effect of the merger. We find that the merger did not result in any price increase either at the local or at the national level.     

Economics at DG Competition, 2011–2012

This paper discusses a selection of cases and important policy developments in the enforcement activities of the Directorate General for Competition at the European Commission during the past year (2011?C2012). In particular, it illustrates the importance of competition policy in the area of financial markets based on the Deutsche B?rse/NYSE Euronext merger decision, discusses the role that the analysis of innovation can play in merger cases based on recent transactions in the hard disk drive industry, and illustrates the rising role of economic analysis in European state aid control.     

Unilateral Competitive Effects of Mergers: Upward Pricing Pressure, Product Quality, and Other Extensions

This paper lays out and extends a derivation of the ??upward pricing pressure?? (??UPP??) tool for analyzing unilateral competitive effects of horizontal mergers on differentiated products that is featured in the 2010 Guidelines. In the most novel extension, the merger alters the differentiated products?? qualities. The resulting tool analyzes whether the merger creates upward pressure on quality-adjusted or ??hedonic?? prices. Another extension applies where one firm acquires just a partial equity stake in a competing firm. The paper also develops the Gross Upward Market Power Pressure Index (GUMPPI) that generalizes UPP measures to include output as well as price effects.     

Anticompetitive Vertical Merger Waves

We develop a model of vertical merger waves and use it to study the optimal merger policy. As a merger wave can result in partial foreclosure, it can be optimal to ban a vertical merger that eliminates the last unintegrated upstream firm. Such a merger is more likely to worsen market performance when the number of downstream firms is large relative to the number of upstream firms, and when upstream contracts are non‐discriminatory, linear and public. On the other hand, the optimal merger policy can be non‐monotonic in the strength of synergies or in the degree of downstream product differentiation.     

Economics at the FTC: Mergers,Dominant-Firm Conduct,and Consumer Behavior

Economists at the Federal Trade Commission (FTC) pursue the agency’s competition and consumer protection missions. In this year’s essay, in antitrust, we discuss the new Merger Guidelines, three exclusion cases, and R&D issues in the Thoratec/HeartWare merger and the Google/AdMob merger. In consumer protection, we discuss the FTC’s new rule on debt settlement, our efforts to improve disclosures, and our recent work on appliance energy disclosures.     

The effect of horizontal mergers,when firms compete in prices and investments

Motivated by a number of high-profile antitrust cases, we study mergers when firms offer differentiated products and compete in prices and investments. Since the net effect of the merger is a priori ambiguous, we use aggregative game theory to sign it: we find that absent efficiency gains, the merger always reduces total investments and consumer surplus. We also prove that there exist classes of models for which the results obtained with cost-reducing investments are equivalent to those with quality-enhancing investments.     

Measuring market shares for the analysis of a consummated merger

This paper asks how market shares should be computed for analysis of a consummated merger. It is argued that pre-merger market shares adjusted for the direct effects of the merger should be used. The actual post merger market shares (which are available only for consummated mergers) should not form the basis of an analysis of the competitive effects of the merger because they may reflect confounding factors, such as entry, exit, or a change in capacity of third-party rivals, unrelated to the merger.     

Merger efficiency gains: Evidence from a large transport merger in france

Many industries are seeing an increase in concentration, leading to a discussion on the effectiveness of horizontal merger enforcement. The policy debate shows that one of the key arguments put forward when supporting potential mergers is the possibility of realization of merger efficiency gains, specifically in the transport industry. Yet, there exists little empirical evidence on the actual effects of realized mergers on cost efficiencies. We exploit a large and highly debated merger that took place in the French transport industry to evaluate whether a merger between two major transport groups may give rise to merger efficiency gains. We exploit the industry setting to employ a difference-in-differences methodology evaluating the effect of the merger on operating costs of merging transport groups. Our results show that, no matter the specification considered, we cannot conclude that the merger resulted in any merger specific efficiency gains for the merging parties. Our study relies on the use of several control groups and is robust to a great number of robustness checks as well as to the introduction of heterogeneous treatment effects, depending on the identity of the merging party, as well as the closeness of competition of local operators. Overall, our study contributes to a growing number of case studies undertaken by economists that can help determine whether horizontal merger policy is being properly enforced.     

基于兼并成本和协同效应的横向并购研究

进入新世纪后,中国企业的并购活动越来越频繁。本文基于SSR模型,引入兼并成本和协同效应,研究并购厂商的并购动机以及并购行为对社会福利的影响,分析协同效应与兼并成本之间的关系。得出结论:当协同效应使厂商增加的利润大于兼并成本时,并购厂商总是愿意并购;并购后,福利在消费者和非并购厂商之间转移。当协同效应和兼并成本满足一定条件时,横向并购才可以增加社会福利。     

Using merger simulation models: Testing the underlying assumptions

Merger simulation is now widely used by economists to evaluate the likely competitive effects of a proposed merger. However, the reliability of a given merger simulation depends crucially on the reliability of the data used and the assumptions made. We discuss tests that can be used to assess the reliability of a merger simulation and show how these tests were applied in the context of the Volvo–Scania merger.