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.     

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.     

International merger activity and the national regulation of mergers: A UK perspective

This paper traces out recent changes in the globalisation of merger activity and considers its implications for national and international regulation of mergers and joint ventures. It argues that a large proportion of mergers involve small firms which may have an important effect on the competitive process and that regulation of large mergers should be complemented by industrial and financial policies to encourage the growth of smaller independent firms.     

The merger paradox in a mixed oligopoly

This paper examines the set of surplus maximizing mergers in a model of mixed oligopoly. The presence of a welfare maximizing public firm reduces the set of mergers for which two private firms can profitably merge. When a public firm and private firm merge, the changes in welfare and profit depend on the resulting extent of private ownership in the newly merged firm. When the government sets that share to maximize post merger welfare as assumed in the privatization literature, the merger paradox will often remain and the merger will not take place. Yet, we show there always exists scope for mergers that increase profit and increase (if not maximize) welfare. Interestingly, these mergers often include complete privatization.     

政府干预、政治关联与地方国有企业并购

本文以2001—2005年间发生的地方国有上市公司收购非上市公司的事件为样本,研究地方政府干预、政治关联对地方国有企业并购绩效的影响。研究发现:地方政府干预对盈利样本公司的并购绩效有负面影响,而对亏损样本公司的并购绩效有正面影响。这说明,出于自身的政策性负担或政治晋升目标,地方政府会损害或支持当地国有上市公司,这为政府"掠夺之手理论"和"支持之手理论"提供了实证支持。我们还发现,盈利样本公司的并购绩效与政治关联正相关。这表明,政治关联可以作为法律保护的替代机制来保护企业产权免受政府损害。     

Mergers in the Electric Utility Industry in a Deregulatory Environment

We document that the merger announcement returns are positive and significant for targets of acquiring electric utility industry firms, but are not as algebraically large as target returns documented in non-regulated industry merger announcements. Additionally, electric utility acquirer firms earn significant negative announcement returns when acquiring an electric utility. We find announcement returns for acquirers vary significantly based upon the timing of the merger announcement, with mergers announced after the Energy Policy Act of 1992 generating negative returns for acquirers. We also find a significant difference in the percentage change in aggregate entity value around the announcement date for diversifying mergers as compared to non-diversifying mergers, with diversifying merger announcements resulting in a decrease in aggregate entity value.     

Mergers,cartels and leniency programs: The role of capital stocks

This paper examines the impact of mergers on collusion, depending on the endowment of capital assets among firms. We show that mergers render collusion easier to sustain when an asymmetric capital stock is combined with less-efficient insiders, due to more symmetric conditions and tighter incentive constraints. Moreover, the model allows us to determine an optimal threshold of asymmetry between insiders and outsiders such that mergers have pro-competitive effects; we compare this value with that which would generate perfect symmetry between firms after the merger.     

Cross-border mergers in a mixed oligopoly

This paper identifies the unique strategic issues of cross-border mergers in a mixed oligopoly showing that the presence of a welfare maximizing public firm increases the incentive for such mergers. The well-known merger paradox that two-firm mergers are rarely profitable is substantially relaxed in the cases of both linear and convex production costs. The ability to identify profitable two-firm mergers in this context takes on added importance as the recent cross-border merger wave often involved industries with public firms.     

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.     

论企业兼并过程中的企业家行为与兼并绩效

企业家作为企业兼并的操作主体，其行为对企业兼并的规范与否和绩效高低产生重要影响。从过程性的角度切入，提练、概括企业兼并过程中的企业家行为，并结合企业兼并绩效分析，整合性地研究了两者的关联机理。根据对五种关联机理的分析，证明不同的企业家行为会导致增值效应或减值效应。     

Horizontal Mergers Under Asymmetric Information About Synergies

This paper analyses a situation in which there are three quantity‐setting firms, two of which are considering whether or not to merge. When these two firms have private information about the potential cost‐saving synergies of the merger, they may have an incentive to overstate them. This is because if they succeed in making the non‐merging rival firm believe that the synergies are high, the rival firm reduces output and the merger becomes more profitable. Under some conditions, anticipating that the rival will form such a belief, low‐synergy firms that would never merge under complete information will mimic high‐synergy firms by merging. Such pooling behaviour by the merging firms can have a negative impact on social welfare.     

Product differentiation, cost‐reducing mergers, and consumer welfare

Abstract.  Cost synergies are an explicitly recognized justification for a two‐firm merger, and empirical techniques are now widely used to assess the impact of cost‐reducing mergers on prices and welfare in the post‐merger market. We show that if the merger occurs in a vertically product differentiated market, then the merger will lead to a reduction in product offerings that limits the usefulness of pre‐merger empirical estimates. Indeed, we further show that in such markets, two‐firm mergers will typically lead to higher prices regardless of the merger's cost savings. JEL classification: L10, L41     

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.     

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.     

The Determinants of Firm’s Growth in the Telecommunication Services Industry: Empirical Evidence from India

The growth and evolution of the industry has an important bearing on the economic development of a country. The extant literature on firm growth provides valuable insights into firm behavior and factors influencing the evolution of the industry over time. The topic becomes even more relevant in the context of the telecommunication industry because of its positive impact on economic growth and productivity, which has been well documented in both the developed and developing country context. Based on the firm-growth literature, this study analyzes the factors influencing the growth of the Indian telecommunication industry using an unbalanced panel of 204 firms across two decades from 2000 to 2020. Dynamic Panel estimation technique (System GMM) is used to take care of endogeneity issues caused by the dynamic nature of firm growth models. Results indicate that the growth of firms in the Indian telecom services industry is explained by systematic factors like size, age, profitability, financial leverage, and trade orientation. The study finds that the larger firms grow at a decreasing rate compared to small firms. The firm's age negatively impacts the growth rate of firms, i.e., younger firms have a faster growth rate than the older ones supporting the case of convergence of firm growth in the Indian telecom services sector. Factors such as lagged R&D intensity, financial leverage, and profitability negatively impact the firms’ growth rate. Export intensity is found to have a negative and significant impact on the growth rate of the firms. The findings have important policy implications in the context of the growth of the telecommunication industry in India, which has witnessed intense competition, steep decline in profitability, and high debt structure over a period of time.

     

Complementarities and spillovers in mergers: an empirical investigation using patent data

We investigate the merger behavior of firms in the plant biotechnology sector using firm-level patent data for public and private firms in the 1980s and 1990s. Conditional logit estimation is used to estimate the probability that the firms will match in mergers and spinoffs. We calculate several patent portfolio-based measures of complementarity and spillovers between firms, and find that both are important to defining a good match of acquirer and target. However, complementarities provide the more robust explanation. The mergers and spinoffs observed in plant biotechnology may have been designed to overcome the anti-commons problem of mutually blocking technology, an extreme form of complementarity. Our results highlight the need to integrate patent and competition policy.     

Difficult to digest: Takeovers of distressed banks in Vietnam

Government-induced or voluntary takeovers are frequently used as an indirect way to bail out distressed banks. In this paper, we analyse the impact of acquisitions on banking performance in Vietnam. To demonstrate that the acquirer is not simply inheriting the properties of the underperforming targets, we compare the performance of the merged bank to the pro forma consolidated performance of the acquirer and the target before the merger. We show that takeovers during and after the financial crisis substantially weaken profitability and liquidity and that this negative effect persists for a period of at least 6 years. These findings show that shareholders should be wary of acquisitions and suggest that stabilizing banks through mergers may have detrimental indirect long-term consequences on the efficiency of financial systems and ultimately economic growth.     

Modelling and predicting the competitive effects of vertical mergers: The bargaining leverage over rivals effect

A new competitive effect of vertical mergers, based on the Nash bargaining model, has begun to play an important role in antitrust authorities’ evaluations of vertical mergers in the United States, Canada and abroad. The key idea is that a vertical merger will increase the bargaining leverage of the merged firm over its downstream rivals. Its bargaining leverage increases because it now takes into account the additional profit that its own downstream division will earn if it withholds inputs from downstream rivals, which changes its threat point in the bargaining game with downstream rivals. Consequently, the merged firm can increase the price that it charges rival downstream firms for inputs. One strong appeal of this theory is that it provides a simple and very intuitive formula to measure the upward pricing pressure caused by a vertical merger due to changes in bargaining leverage, based on variables whose values can generally be estimated using available data. This article describes this new competitive effect, which will be called the bargaining leverage over rivals (BLR) effect, and derives the upward pricing pressure formula. It also explains why this new competitive effect is distinct from the older raising rivals’ costs (RRC) effect that has been widely discussed in the economics literature, and discusses the relationship between the two different effects.     

Human Capital and Growth: New Evidences from African Data

Assuming that all firms have rising marginal costs, merger between a dominant firm and one of the firms in the competitive fringe is considered. The effects on market price and output, profits and market power are shown when the dominant firm operates as a two-plant firm after merger and output arises from both plants. It is proved that if merger offers no efficiency gain, then market price always rises; and if merger results in efficiency gain, then market price falls if and only if there are sufficiently large number of firms in the fringe. In any case, there is profit incentive for merger to take place. [611]     

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.