Mergers with Product Market Risk

This paper studies the causes and the consequences of horizontal mergers among risk-averse firms. The amount of diversification depends on the allocation of shares among the merging firms, with a direct risk-sharing effect and an indirect strategic effect. If firms compete in quantities, consolidation makes firms more aggressive. Mergers involving few firms are then profitable with a relatively low level of risk aversion. With strong enough risk aversion, mergers reduce prices and improve social welfare. If firms instead compete in prices, consumers do not benefit from mergers in markets with demand uncertainty, but can easily benefit with cost uncertainty.     

会计师事务所合并、审计市场结构与审计定价

以2006年至2009年初发生的8起"强强联合"会计师事务所合并案为研究对象,分析合并发生前后审计市场结构与审计定价的变化后发现:随着会计师事务所合并案的增多,市场结构呈现出市场集中度增加以及大所之间竞争更为均衡的特点,国内本土所的市场力量在逐渐增强,但与国际"四大"之间还存在着十分明显的差距。从单变量检验来看,合并后会计师事务所对同一客户的审计收费较合并前显著增加,但在控制其他影响审计定价的因素后,合并因素对审计定价虽仍有正向作用,但是在统计上并不显著。     

Can the Timing of Negotiations Impact the Consequences of Mergers?

This paper uses a theoretical model to examine whether variation in the timing of negotiations between buyers and sellers can alter the effects of mergers between sellers. The model shows that mergers between horizontally overlapping firms lead to price increases regardless of how negotiations take place. In contrast, mergers between firms in different markets can only lead to higher compensation for the combined firm when negotiations occur sequentially. However, any price effects from out‐of‐market mergers stem from a mechanical redistribution of existing market power and not from a loss in competition. Published 2014. This article is a U.S. Government work and is in the public domain in the USA.     

Mergers to Monopoly

Horizontal mergers between firms that have different costs are examined. Owners can transfer technology to an acquired firm and decide whether to consolidate or operate their firms as separate entities in the product market. Thus mergers can exhibit both efficiencies and a market-power effect. The prices of target firms are determined via a bargaining game. An equilibrium sequence of mergers entails the largest firm targeting the next largest rival firm. Initially, this sequence of mergers with technology transfers involves no consolidations and improves welfare. Ultimately, the acquisitions lead to consolidation and may decrease total welfare.     

Mergers in Two-Sided Markets: An Application to the Canadian Newspaper Industry

In this paper, we study mergers in two-sided industries and, in particular, the effects of mergers in the newspaper industry. We present a model which shows that mergers in two-sided markets may not necessarily lead to higher prices for either side of the market. We test our conclusions by examining a spate of mergers in the Canadian newspaper industry in the late 1990s. Specifically, we analyze prices for both circulation and advertising to try to understand the impact that these mergers had on consumer welfare. We find that greater concentration did not lead to higher prices for either newspaper subscribers or advertisers.     

The Impact of the Big 8 Mergers on Market Power: Evidence from the Hong Kong Market

This study examines the impact of the Big 8 mergers on market power in an audit market where the merging firms have little presence. Audit fee changes for each merger participating firm are identified and fee changes for several post‐merger years are examined. The pre‐merger differential market power between the merging and non‐merging long‐established Big 8 firms (Price Waterhouse and KPMG Peat Marwick) in Hong Kong provides a unique opportunity to examine whether the mergers could help the merging firms to increase their market power. The results are consistent with the hypotheses that the audit fees of the merging firms were significantly lower than that of the non‐merging, long‐established Big 8 firms before the mergers, but the audit fees of the merged firms increased significantly to a level comparable with that of the latter group after the mergers. In addition, the market share of the merged firms increased significantly after the mergers. However, no association is found between market concentration and market power. Overall, the results show that the Big 8 mergers have helped the merged firms increase their market power and market share in the Hong Kong audit market where they had little presence.     

Price Discrimination in Two‐Sided Markets

We examine the profitability and welfare implications of targeted price discrimination (PD) in two‐sided markets. First, we show that equilibrium discriminatory prices exhibit novel features relative to discriminatory prices in one‐sided models and uniform prices in two‐sided models. Second, we compare the profitability of perfect PD, relative to uniform prices in a two‐sided market. The conventional wisdom from one‐sided horizontally differentiated markets is that PD hurts the firms and benefits consumers, prisoners' dilemma. We show that PD, in a two‐sided market, may actually soften the competition. Our results suggest that the conventional advice that PD is good for competition based on one‐sided markets may not carry over to two‐sided markets.     

The causes of mergers: tests based on the gains to acquiring firms' shareholders and the size of premia

Despite the large number of event studies of mergers that have been undertaken, considerable disagreement still exists over whether mergers increase the value of the merging firms, and if so why. Most event studies measure the average returns to the acquired and acquiring companies' shareholders separately, and based on these averages conclude either that mergers increase wealth, or that they reduce it. From this the authors go on to claim support either for a hypothesis about how mergers increase efficiency, or for one that claims they do not. This paper develops a methodology that uses the distribution of gains and losses across the two samples of firms, and their relationship to one another to test four hypotheses about why mergers occur: (1) the market‐for‐corporate‐control hypothesis, (2) the synergy hypothesis, (3) the managerial discretion hypothesis, and (4) the hubris hypothesis. The hypotheses are tested with data for 168 mergers between large companies from 1978 through 1990. Considerable support is found for the managerial discretion and hubris hypotheses, and some support is found for the market‐for‐corporate‐control hypothesis. Little or no support is found for the hypothesis that mergers create synergies and that shareholders of both the acquiring and acquired firms share gains from these synergies. Copyright © 2003 John Wiley & Sons, Ltd.     

Spoils from the Spoiled: Strategies for Entering Stigmatized Markets

Stigmatized markets are those where either the products/services, or the consumers, or both, have been collectively, negatively stereotyped and devalued by one or more stakeholder audiences in ways that discredit the overall market. Many stigmatized markets exist, and many flourish, yet little systematic attention has focused on entry into such markets. Our article addresses this gap by conceptualizing various strategies for entering stigmatized markets. We further present propositions regarding the market‐level factors that can influence which of these strategies firms will choose to employ. The contributions include: conceptually clarifying the nature of stigmatized markets; identifying additional types of entry strategies relevant for entering stigmatized markets; theorizing the conditions under which firms would choose one entry strategy over another; and opening up for consideration the effects that market entry may have on stigmatized actors in targeted markets.     

Endogenous mergers under multi-market competition

This paper examines a simple model of strategic interactions among firms that face at least some of the same rivals in two related markets (for goods 1 and 2). It shows that when firms compete in quantity, market prices increase as the degree of multi-market contact increases. However, the welfare consequences of multi-market contact are more complex and depend on how two fundamental forces play out. The first is the selection effect, which acts to increase welfare, as shutting down the relatively more inefficient firm is beneficial. The second opposing effect is the internalisation of the Cournot externality effect; reducing the production of good 2 allows firms to sustain a higher price for good 1. This works to increase prices and, therefore, decrease consumer surplus (but increase producer surplus). These two effects are influenced by the degree of asymmetry between markets 1 and 2 and the degree of substitutability between goods 1 and 2.     

Are the stock and real estate markets integrated in China?

This paper examines the dynamic short-run and long-run co-movement between the real estate and stock markets in China by employing a continuous wavelet method. We use gross domestic product and M2 (broad money supply) as control variables to eliminate the common factors of the two markets and to identify the real nexus between them. The empirical results show that the co-movement between real estate and stock prices is weak in the short run, except during the financial crisis period. Since the stock market is highly volatile, while real estate prices are relatively stable, the two markets are less correlated in the short run. The results also show that real estate prices affect stock prices in the long run, which supports the existence of a credit-price effect in China. Real estate prices remained very high in most time periods. Enterprises and individuals can obtain funds from bank loans to invest in the stock market, thus raising stock prices. These findings indicate that the two markets are generally segmented in the short run but are integrated in the long run. The stabilization of the real estate market is critical for stability in the stock market, but not vice versa. Additionally, investments in the two markets may not provide a high level of risk dispersion in the long run in China.

     

International mergers and acquisitions: A jump diffusion model application

This paper empirically investigates international mergers and acquisitions (M&As) of foreign targets and bidders by analyzing the stock price behavior of the firms involved. The jump diffusion model is employed to study the effects of the M&A announcements on stock prices. The results indicate that acquisition announcements are perceived as a surprise by the market, but prices seem to adjust rather rapidly, supporting the semi-strong form of the market efficiency hypothesis. In addition, a comparison of the pure diffusion and jump diffusion models indicates that the jump diffusion model is statistically superior to the traditional event study methodology (pure diffusion model). (JEL G34)     

Exit Deterrence

This paper is the first to provide a general context whereby potential entry can lead incumbent firms to permanently reduce the intensity of competition in a market. All previous results found that potential entry would lead to lower prices and greater competition. Examining markets where entry occurs by the acquisition of access rights from an existing incumbent, we demonstrate that, where competitive choices are strategic complements, a more efficient entrant may be unable to acquire those rights from a less efficient incumbent due to the unilateral accommodating behavior of the efficient incumbent. Similarly, such accommodating behavior may deter efficient investment by an incumbent. These results have implications as to how economists view potential entry and its benefits.     

Is there an equilibrating relationship between house prices and replacement cost? Empirical evidence from Berlin

It is a feature of competitive markets with forward-looking participants that a good’s benefit and its production cost are equalized in equilibrium and that no resources are wasted during the adjustment process. For housing markets, there is mixed evidence whether they meet this standard of allocative efficiency. Based on a unique data set with rich information on prices and cost, we examine the market for single-family houses in Germany’s capital Berlin. At the aggregate market level, we find that prices and cost tend to equalize in the long run. Short-run adjustment appears to be sufficiently fast and properly anticipated to prevent systematic excess profit opportunities. At the cross sectional level of individual houses, we find support that resources are allocated efficiently between different market segments. Taken together, our results provide sufficient evidence that the market in Berlin is efficient.     

Segmentation in urban housing markets

This study tests the hypothesis that urban housing markets are segmented in the sense of significantly different prices per unit of housing services existing contemporaneously in spatially or structurally defined submarkets. Using an unusually rich data set for single-family, suburban Boston homes, significant differences in the prices of individual housing attributes are found; but these differences result in negligible differences in the overall price per unit of services. A main conclusion is that the market is working fairly efficiently to eliminate price premiums and discounts, at least in the portion of the market analyzed.     

Market value,market share,and mergers: Evidence from a panel of U.S. firms

Improving shareholder value has often been cited as a merger determinant. Because mergers create larger firms and less competition, they may increase shareholder value through higher market share and stock‐market value. We investigate merger impacts on firms' stock‐market value and market share. We construct panel data from 4 different data sources on public merging and non‐merging U.S. manufacturing firms for 1980–2003. Instrumental variables and factors such as R&D, patents, and citations control for endogeneity. We find that mergers are positively correlated with stock‐market value and market share.     

Accreditation in regulated markets

We study firms that supply a vertically and horizontally differentiated service in a market with regulated prices. The incentives for seeking accreditation are more significant for sellers of below-average quality services relative to sellers of above-average quality services. For homogenous firms, profits are lower in equilibria where both firms seek accreditation relatively to equilibria where neither does. Private and social accreditation incentives typically differ. The welfare optimal reimbursement rate is independent of a firm's actual accreditation decision but dependent on the accreditation decision of the rival. Hence, policies that give extra financial support to firms that accredit are likely to promote inefficiency.     

Exploring issues of market inefficiency by the role of forecasting accuracy in survivability

Whether markets are efficient or not has been broadly discussed in the empirical literature since the efficient markets hypothesis was proposed by Fama and others in the 1960s. Unfortunately, they did not come to a consistent conclusion. Besides, while these studies show whether a specific market is efficient or not, little has been done to explore the issues regarding the degree of market inefficiency. This paper attempts to resolve the puzzle of the inconsistent conclusions in the empirical literature by adopting a bottom-up approach which takes market participants’ interactions and coordination into consideration. By simulating an agent-based artificial stock market, this paper concludes with three main findings. First, agents’ survivability is mainly decided by risk preference, and not forecasting accuracy. Survivors may have diverse forecasting accuracy. Second, because market prices are not decided by agents based on accurate predictions, markets can not be efficient. What may exist is only the difference of the degree of inefficiency between markets. Third, the more relevant to survivability the forecasting accuracy in a market is, the less inefficient the market will be. Therefore, this paper suggests that it may be better to view the divergent empirical results regarding market efficiency as a fact that markets are inefficient to a variety of degrees.     

Market Optimism and Merger Waves

We argue that stock and bond market booms and merger waves are both driven by increases in optimism in financial markets and discuss two behavioral hypotheses, the managerial discretion and overvaluation hypotheses that claim that merger waves are driven by market optimism. Empirical support for the managerial theory is provided by evidence that the amounts of assets acquired increase as optimism in financial markets increases and that the returns to acquiring companies are inversely related to market optimism at the time of mergers. Our measures of market optimism also explain managerial choices of finance for mergers. Copyright © 2012 John Wiley & Sons, Ltd.     

Market Morality: Robert Nozick and the Question of Economic Justice

A bstract . The study of markets and market prices has been a central feature of economic inquiry since the 18th Century. There have always been lingering questions on the meaning of market prices. Most moderneconomists argue that there are no normative implications to price analysis. The disclaimers of some economists about normative judgments ring hollow in the light of their vigorous advocacy of free market solutions to economic and other problems. Either free market solutions are superior alternatives or they are not; one cannot have a value free analysis and an ideological advocacy at the same time. The philosopher, Robert Nozick, in Anarchy, State, and Utopia , clearly finds meaning in the market place. His entitlement theory is predicated upon free exchange of goods and productive services. The normative use of free markets in general and of Robert Nozick's formulation in particular, it is contended, are inconsistent, illogical, and unscientific.