How effective is European merger control?

This paper applies an intuitive approach based on stock market data to a unique dataset of large concentrations during the period 1990–2002 to assess the effectiveness of European merger control. The basic idea is to relate announcement and decision abnormal returns. Under a set of four maintained assumptions, merger control might be interpreted to be effective if rents accruing due to the increased market power observed around the merger announcement are reversed by the antitrust decision, i.e. if there is a negative relation between announcement and decision abnormal returns. To clearly identify the events' competitive effects, we explicitly control for the market expectation about the outcome of the merger control procedure and run several robustness checks to assess the role of our maintained assumptions. We find that only outright prohibitions completely reverse the rents measured around a merger's announcement. On average, remedies seem to be only partially capable of reverting announcement abnormal returns. Yet they seem to be more effective when applied during the first rather than the second investigation phase and in subsamples where our assumptions are more likely to hold. Moreover, the European Commission appears to learn over time.     

Product Market Competition and Lobbying Coordination in the U.S. Mobile Telecommunications Industry

This paper empirically investigates market behavior and firms?? lobbying in a unified structural setup. In a sequential game, where firms lobby for regulation before they compete in the product market, we derive a testable measure of lobbying coordination. Applying the setting to the early U.S. cellular services industry, we find that lobbying expenditures, as measured by campaign contributions, and market conduct were consistent with a one-shot Nash equilibrium and that price caps were binding on average. Furthermore, campaign contributions from cellular firms effectively lowered the burden of the price caps and reduced production costs.     

Market Conduct and Endogenous Lobbying: Evidence from the U.S. Mobile Telecommunications Industry

This paper empirically explores the relationship between firms' market behavior and their lobbying activities in a regulated market. In particular, we investigate whether the amount of contributions offered by cellular service providers to fund the campaigns of political parties affected market conduct in the early US mobile telecommunications industry. We structurally estimate market interactions while taking the potential endogeneity of lobbying decisions into account. Our results show that competition was more intense in those states where campaign contributions by the cellular industry have been higher. Furthermore, we reject the hypothesis that lobbying activities can be regarded as exogenous in the study of market conduct.     

The Impact of Horizontal Mergers on Rivals: Gains to Being Left Outside a Merger

It is commonly perceived that firms do not want to be outsiders to a merger between competitor firms. We instead argue that it is beneficial to be a non-merging rival firm to a large horizontal merger. Using a sample of mergers with expert identification of relevant rivals and the event-study methodology, we find rivals generally experience positive abnormal returns at the merger announcement date. We also find that the stock reaction of rivals to merger events is not sensitive to merger waves; hence, 'future acquisition probability' does not drive the positive abnormal returns of rivals. Further, we find the positive (or non-negative) abnormal returns of rivals to be robust when considering heterogeneity in merger and rival characteristics.     

Transformational Strategies and Productivity Growth: A Transformational-Activities Perspective on Stagnation in the New-Normal Business Landscape

Declines in productivity growth substantially explain new-normal business stagnation; yet in order to address situations of slack productivity growth, firms can choose from six generic transformational strategies: retirement, renewal, retrenchment, replication, redeployment, and recombination. While the extant literature focuses on specific transformational strategies that particular firms, or industries, take in responding to productivity threats, questions regarding which transformational strategies are commonly employed and commonly successful have been neglected. Answering these broader questions allows factoring how firms might respond to new-normal conditions; and yields normative implications regarding the transformational strategies – and policies – that enhance productivity growth and reverse new-normal stagnation. Using cross-industry panel data, we identify the transformational strategies that are both commonly employed and commonly successful. Our empirical results indicate that firms react to productivity threats via a variety of strategic responses; yet, engaging in renewal and recombination uniquely address such threats.     

Forecasting market states

We propose a novel methodology to define, analyze and forecast market states. In our approach, market states are identified by a reference sparse precision matrix and a vector of expectation values. In our procedure, each multivariate observation is associated to a given market state accordingly to a minimization of a penalized Mahalanobis distance. The procedure is made computationally very efficient and can be used with a large number of assets. We demonstrate that this procedure is successful at clustering different states of the markets in an unsupervised manner. In particular, we describe an experiment with one hundred log-returns and two states in which the methodology automatically associates states prevalently to pre- and post-crisis periods with one state gathering periods with average positive returns and the other state periods with average negative returns, therefore discovering spontaneously the common classification of ‘bull’ and ‘bear’ markets. In another experiment, with again one hundred log-returns and two states, we demonstrate that this procedure can be efficiently used to forecast off-sample future market states with significant prediction accuracy. This methodology opens the way to a range of applications in risk management and trading strategies in the context where the correlation structure plays a central role.     

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.     

A Short Overview of a Methodology for the Ex-Post Review of Merger Control Decisions

Summary  This paper is based on a study commissioned by the European Commission, in which we proposed a detailed methodological approach for the ex-post assessment of decisions reached by the European Commission in the field of merger control. The methodology focuses on how to establish whether the market structure arising from the decision is apt to protect consumer welfare better than the market structures that could have arisen from alternative decisions. It provides suggestions on how assess the impact of the decision relative to the possible counterfactuals and discusses the empirical techniques that can be used to perform this evaluation.