Empirical Analysis of the Assessment of Innovation Effects in U.S. Merger Cases

In merger policy it is still an open question how the negative effects of mergers on innovation should be assessed. In this empirical study all mergers that were challenged by the U.S. antitrust agencies FTC and DOJ between 1995 and 2008 were analyzed in regard to the question to what extent and how the agencies assessed the innovation effects of mergers. The study also contributes to the discussion about differences and convergence in the merger assessments of the two agencies FTC and DOJ. Our results show (1) that in one third of all challenged mergers also innovation concerns have been raised (with no significant differences between the agencies). (2) Despite the wide-spread rejection of the “innovation market approach” in the antitrust debate the agencies used more often an innovation-specific assessment approach that includes also innovation in the market definition than the traditional product market concept. (3) Overall, we found both significant similarities and differences as well as some convergence over time in regard to the specifics of the assessment of innovation effects of mergers between both agencies.     

Merger Impacts on Investor Expectations: An Event Study for Australia

In previous work, little evidence of share‐price response to Australian price‐fixing investigations was found. However, these investigations often involve a small part of a company’s operations and antitrust penalties have tended to be relatively small; in fact, some weak support was found for a greater response by investors when penalties were expected to be more significant. Mergers, on the other hand, clearly represent a much more significant event, and we would anticipate a clearer share‐price response both to announced mergers and to associated antitrust challenges. While such studies have been done in other countries (primarily for the US), we know of no prior research of this sort for Australia. In this paper we focus on a sample of about 50 mergers and acquisitions involving Australian companies from 1996 to 2003, examining the impact on share prices of the announcement of these mergers both on the firms involved and on rival firms. For those which were challenged by the Australian antitrust enforcers, we also consider the impact of the announcement of such a challenge.     

Simulating Partial Asset Divestitures to 'Fix' Mergers

In this paper, we apply and extend merger simulation methodology to analyze the effectiveness of partial divestitures as a 'fix' to remedy the possible anticompetitive effects of horizontal mergers. Typically, antitrust agencies require merging firms to divest assets so that the status quo before the merger is restored, that is, they favor a 'full divestiture'. We focus on the effectiveness of a partial divestiture as an antitrust remedy (where a subset of products owned by the merging firms is spun off). Although this is not the type of full divestiture favored by antitrust agencies, we argue here that a partial divestiture could leave consumers better off after the merger than they were before - under certain conditions. Using a real-world example, we show how divesting a relatively close substitute creates competition that offsets the anticompetitive effects of combining products that are relatively distant substitutes. This result stands even when the divestee is moderately inefficient.     

Setting Upper Limits on Merger Related Efficiencies

The purpose of this paper is to show that a complementary entry analysis could be performed by the authorities when assessing the welfare impacts of a merger. In addition to analyzing the likelihood and impact of post-merger entry by other firms, the authorities could also study pre-merger alternatives for the insiders, that is, to study wether other concentration operations were available but not chosen by the merging or acquiring firms. This may be particularly useful when the authorities are faced with a concentration operation that raises anti-competitive concerns. Insiders will argue that cost reductions are likely to compensate these negative effects. However, if the cost reductions are not firm specific it is possible, in some circumstances, to establish an upper limit on the extent of cost reductions when there are other mergers available. If these mergers were admissible but were dominated by the present one, information is revealed about the extent of cost reductions. This information may lead to the authorities updating their beliefs on efficiencies. Such updates may lead to the modification of the decision to approve or reject the merger.     

The Empirical Basis for Antitrust: Cartels,Mergers, and Remedies

There have been a number of studies attempting to quantify the impact of cartels and mergers on prices. The state of the art of empirical analysis related to antitrust is best illustrated by the research of John Connor and John Kwoka. Connor summarizes the existing empirical research that estimates the magnitude of the impact of cartels on prices. He estimates that cartels increase prices by >20% on average, and concludes that fines and damage awards do not sufficiently deter cartels and should be larger. Kwoka summarizes research estimating the impact of mergers on prices and other market outcomes, and recommends tighter merger regulation. Since the works of both have been used to support more aggressive antitrust enforcement, it is important to understand the basis for their research and how it is best weighed. This article critiques their substantial efforts to add more empirical content as the basis for antitrust policies.     

Horizontal mergers under uniform resource constraints

Resource constraints have a vertical influence on a firm's competition and it is important to address the issue of horizontal mergers with scarce resources. This article highlights the effects of uniform resource constraints on horizontal mergers with game theory methods. First, the threshold values for the firms to accept the merger, increasing consumer surplus, and increasing social welfare are presented and compared. Second, the threshold value to merge for consumer surplus maximization is larger than that for profit incentive mergers without resource constraints. Thus, under unbinding resource industries, mergers reduce consumer surplus and it is necessary to implement antitrust. Third, resource constraints deter mergers. Finally, under binding capacity (or resource) constraints, the threshold value for firms to merge is larger than that for the social optimality. Therefore, industries with scare resource should avoid antitrust.     

Capital Structure and Mergers: Retrospective Evidence from a Natural Experiment

This analysis evaluates the impact of corporate debt in influencing mergers of local exchange companies in the United States telecommunications industry between 1988 and 2001. Firms’ financial structures significantly affect behavior and performance; yet no evidence has shown how firms’ financial structures influence their merger activities. The impact of corporate debt levels on the various mergers that took place during the merger wave in the sector is significantly negative for the first set of mergers carried out, and significantly negative, but with smaller impact, for the second set of mergers. The results support the idea that firms with high debt levels can be monitored carefully, precluding engagement in potentially-risky mergers so as to not engender negative financial outcomes.     

Organizational design of R&D after mergers and the role of budget responsibility

We consider an innovation contest between n firms in the presence of knowledge leakages from an innovating firm to its rivals. Our analysis focuses on the effects of these knowledge spillovers on merger activities between firms. In particular, we are interested in how different organizational designs of R&D after mergers affect profits of firms taking part in a merger and profits of their non-merging rivals. Three organizational arrangements are analyzed: first, a fusion of R&D departments in which the newly merged firm decides to close down one of the previously two R&D departments. Second, a profit center arrangement in which the newly merged firm keeps the old R&D departments as fully functional entities with a sovereign budget responsibility at each of the two departments. Third, a multisubsidiary organizational form in which the newly merged firm still keeps the old R&D departments but with restricted budget responsibility in the sense that they are forced to determine cooperatively their R&D budgets in order to maximize overall firm’s profits. It turns out that the different organizational designs of R&D after the merger and the budget responsibilities have major impacts on merger outcomes.     

Small firms and the merger mania

Empirical research has found an average or even superior performance of small firms. This seems to be at variance with the secular concentration process and the recurrent merger waves. This paper tries to integrate size and merger research. Higher profitability of small firms is explained by their incentive structure and shorter decision lags but also by lower wages and higher individual risk (premia). Their faster growth in the eighties was, in addition, fostered by diversification of demand, miniaturization of technology, and a need for flexibility under uncertainty. The merger wave on the other hand does not necessarily prove that large firms are superior. Managers and shareholders may be seduced by stockmarket optimism, a sizeable industry of banks, agents and lawyers have their own interests in mergers, mergers may be important in declining markets and for the acquisition of technology. On average, mergers do not improve efficiency, profits or internal growth. Small and large firms serve different purposes. Performance depends on the market, incentives and technology. The establishment, growth and closure of small firms as well as mergers are attempts to find the optimal organization for utility maximization in a world of severe uncertainty and diverse needs.     

数字经济下平台竞争对反垄断规制的挑战

平台经济是数字经济的重要组成部分,作为一种新的经济业态与生产组织方式具有优化资源配置、推动经济多元融合、促进产业升级与跨界融通发展的重要作用。平台企业在高速发展的同时也形成了垄断隐忧,妥善处理数字经济的创新发展与规制平台垄断行为的关系是全球反垄断司法辖区亟待解决的问题。平台的算法行为是企业为实现利润最大化而做出的明智的单方市场应对行为还是竞争者间非法合谋的结果,是数字经济中尤为突出的难题。数字经济的发展使平台的滥用行为既有传统反垄断法所规制的滥用行为的新表现,也有新型滥用行为。同时,大型数字科技公司的零存活区策略以及大型公司对初创企业的收购对竞争的影响亦值得反垄断法关注。从垄断协议、滥用市场支配地位和合并控制等角度看,应加强平台竞争监管,在现有反垄断法分析框架和体系下对平台竞争垄断进行规制,通过对立法、执法、司法的技术完善和更新来适应数字经济的特点和发展变化。在加强对平台竞争监管的同时,更要顺应数字经济的发展规律,创新对平台竞争监管的方式,构建公平有序的竞争环境,促进相关技术的革新与进步,推动平台经济与实体经济的深度融合,从而实现经济效率与社会总福利的提升。此外,应优化竞争分析框架,构建包含消费者福利、用户数据及隐私保护、平台的产品或服务质量等因素的多元分析框架,改进市场调查等竞争政策工具。     

Economies as an Antitrust Defense Revisited: The Welfare Trade-offs and Safe Harbors

This paper incorporates a Cournot model of oligopoly pricing into Williamson’s (1968a) model to assess the welfare effect of a merger that yields economies and market power simultaneously. The results show: (i) in most cases, economies from mergers can offset price increases due to market power such that there are positive net allocative effects, and (ii) the safe harbors in the merger guidelines may fail to screen out mergers correctly. The reliability, however, can be improved by considering cost savings and price elasticities in addition to the current use of increases in HHI and post-merger HHIs.     

The Effects of Market Concentration and Horizontal Mergers on Hospital Costs and Prices

Antitrust advocates believe that horizontal consolidation in hospital markets can reduce competition and increase prices while merger advocates believe it can benefit consumers by reducing service duplication. This study analyzed the market conditions, operating characteristics, and costs and prices of approximately 3500 short-term general hospitals (including 112 within-market-area mergers) from 1986 to 1994 to investigate the effects of market concentration, hospital mergers, and managed care penetration. The results show: a shift away from non-price competition toward price competition in health care markets; that this shift was fueled by increased market penetration by price-sensitive buyers; that horizontal hospital mergers produced average cost savings of approximately 5%, which were generally passed on to consumers as lower prices; that cost savings were generally greater for mergers of similar-size hospitals, with a higher degree of duplicative services, and with lower pre-merger occupancy rates; and some evidence that post-merger price reductions were smaller in less-competitive markets.     

Effect of R&D and Market Concentration on Merger Outcomes – An Event Study of US Horizontal Mergers

This study examines the pattern of abnormal returns for merging companies and rivals, to determine investor expectations regarding the impact of horizontal mergers challenged by the government. Prior studies have indicated that the government may have challenged efficiency-enhancing mergers, as evidenced by the pattern of abnormal returns to rivals during merger events. This study uses a two-stage regression approach to examine those patterns, using challenged mergers from 1997 to 2007, and finds evidence of potential price effects from approved mergers. The results also show the mergers to have differential effects depending on the level of R&D, market concentration, and product sales.     

Barbarians at the Gates: State Control of Global Mergers and Acquisitions

Cross‐border mergers and acquisitions are a major and often politicised component of foreign direct investment. Using data on individual transactions between 1970 and 2006, we examine the restrictions countries place on mergers and acquisitions, whether they use these controls to discriminate against foreigners seeking to acquire domestic firms, and what factors may predict the propensity to block foreign entry by this method of direct investment. Drawing partly on the existing literature, we test hypotheses that state intervention can be explained by characteristics of the countries whose firms are targeted by acquirers, including per capita income, democracy, trade exposure, market size, government share of national income and industrial structure. Although democracy, trade exposure and high government expenditure are associated with more stringent merger control laws, none of these attributes cause states to discriminate against cross‐border mergers. Countries with high per capita incomes, large markets and strict merger control laws, do use those regulations to discourage foreign acquirers. A second set of tests, based on observations of individual deals, rather than national aggregates, reveal that governments are particularly averse to foreigners acquiring firms that are bankrupt or in the defence sector. Overall, governments do treat cross‐border mergers and acquisitions differently, and use their merger control laws to discriminate against foreign investors, particularly with respect to certain types of transactions.     

Company Taxation and Merger Incentives in International Oligopoly: on International Policy Coordination with Strategic Trade

We analyse how national taxation of firms is likely to affect merger incentives in international markets. In particular, we ask whether non-coordinated trade policies stimulate cross-border mergers that are overall inefficient, and if this then is an argument for international coordination of such policies? We address this issue in a setting where policy makers use two-part tariffs to tax exporting firms. The analysis reveals that while non-coordinated policies may induce cross-border mergers by allowing the firms in question to play national policy makers out against each other, this can nevertheless be overall welfare enhancing compared to market outcomes under coordinated policy making.     

Mergers Among German Cooperative Banks: A Panel-based Stochastic Frontier Analysis

Based on an unbalanced panel of all Bavarian cooperative banks for the years of 1989--97, which includes information on 283 mergers, we analyze motives and cost effects of small-scale mergers in German banking. Estimating a frontier cost function with a time-variable stochastic efficiency term, we show that positive scale and scope effects from a merger arise only if the merged unit closes part of the former branch network. When we compare actual mergers to a simulation of hypothetical mergers, size effects of observed mergers turn out to be slightly more favorable than for all possible mergers. Banks taken over by others are less efficient than the average bank in the same size class, but exhibit, on average, the same efficiency as the acquiring firms. For the post-merger phase, our empirical results provide no evidence for efficiency gains from merging, but point instead to a leveling off of differences among the merging units.     

Can Industry Consolidation Lead to Greater Efficiencies? Evidence from the U.S. Defense Industry

The question of whether mergers in various industries lead to greater market power or improved efficiencies has been the subject of numerous public policy debates. This analysis focuses on the impact of consolidation in the U.S. defense industry over the past 20 years and examines the reasons behind the wave of defense consolidation, the results in terms of the reduction in contractors, the antitrust response to mergers, and evidence on the impact of the mergers on weapons systems’ total and per-unit costs. The analysis finds that merger activity was driven less by declines in spending following the Cold War than by a stronger economy and a vibrant financial market. The cost data show that 39 to 44 percent of systems experienced statistically significant change in either total costs or per-unit costs following a merger. Somewhat more systems were likely to exhibit lower postmerger per-unit costs than higher per-unit costs, suggesting improved efficiency. The analysis also examines the impact on weapon systems cost by type of weapons system, manufacturer, and service (Army, Navy, Air Force). The evidence suggested greater efficiencies following consolidation for many sectors. Army and Navy systems overall showed lower per-unit costs, but the Air Force weapons systems showed mixed results.     

Operating performance of European bank mergers

With very few exceptions the accepted viewpoint established by (predominantly) US research is that bank operating performance is not improved after merger. In this article we concentrate on European banks and investigate post-merger operating performance for 35 publicly listed bank mergers that were completed between 1992 and 1997. We find that industry-adjusted mean cash flow return did not significantly change after merger but stayed positive. We also find that the merger led to a significant decrease in profitability and capitalisation. Our key finding, in contrast to the US evidence, is that cost-efficiency ratios improved, although the improvement was not large enough to offset the profitability decrease. We also find that low profitability levels, conservative credit policies and good cost-efficiency status before merger are the main determinants of industry-adjusted cash flow returns and provide the source for improving these returns after merger.     

Merger drivers and the change of bidder shareholders' wealth

A growing number of merger studies concern the causality of firm performance and merger activity in the last decade, but with mixed results. Assuming semi-strong efficiency, this article argues that firms with good stock performance are more likely to acquire other firms. With 412 US-listed bidders, results from the event study method clearly support our hypothesis by showing a strong upward movement of cumulative abnormal returns across groups in the pre-merger period. Results also suggest that bidders of different characteristics have different preference for payment methods and thus the market reactions to them are different, despite the noise that frequently accompanies merger activity. These empirical outcomes are important to both investors and financial services companies including investment banks when knowledge about the market reactions to their clients in mergers is required.     

Are Bank Mergers Good News for Shareholders? The Effect of Bank Mergers on Shareholder Value in Japan

This study investigates the effects of bank mergers on the welfare of affiliated client firms. The findings demonstrate that, in general, bank mergers increase the welfare of client firms. However, there are significant differences in the impact of a bank merger on client firms across different merger, bank, and firm characteristics. Client firms of banks involved in mega‐mergers do not enjoy an increase in welfare. Client firms of undercapitalized banks in fact suffer significant welfare losses. In the long‐run, weak “zombie” firms also in many cases experience welfare losses following the announcement of a merger by their main bank.