Do mergers improve efficiency? Evidence from restructuring the US electric power sector

This paper analyses the performance impact of the merger wave which took place in the US electricity industry during the period 1994–2003. It does so by analyzing the impact on operating and total cost in electricity distribution. While there are past studies of efficiency and productivity effects, as well as of prices, profits, and other outcomes, this study differs in several ways. First, the database consists of many merging and non-merging firms, rather than only a few on which to base inferences. Second, all of these mergers arise in a single industry, greatly facilitating controlled comparison. Third, we have data on the several years of pre-merger and post-merger efficiency of the specific merging units, unlike virtually all past studies. Finally, we employ a powerful nonparametric technique—data envelopment analysis—to measure the efficiency of each operating unit. The results indicate that electricity mergers are not consistent with improved cost performance.     

Mergers and innovation: Evidence from the hard disk drive market

This paper is a retrospective evaluation of how innovation changed following mergers and subsequent policy interventions after the 5-to-3 consolidation of the worldwide hard disk drive industry in 2012. It adopts a holistic view of innovation, employing four different measures: R&D, patents, the number of new models, and their unit prices. This allows us to distinguish the magnitude of the merging parties innovative efforts from the productivity of those efforts. Our firm-level approach confirms that there is important heterogeneity across the players, which we attribute to differences in the severity of remedies required by competition authorities.     

Market Structure after Horizontal Mergers: Evidence from the Banking Industry

Antitrust agencies use measures of market structure to evaluate the likely competitive effects of proposed mergers, but little is known about how measures of market structure change over time, particularly after consummation of mergers and acquisitions. This paper analyzes the changes in market structure 3 and 5 years after mergers in the US banking industry. Our analysis suggests that concentration decreases and the number of banks increases in banking markets where mergers resulted in high concentration levels. In markets where the level of concentration changed by a relatively large amount, our findings are more ambiguous, as the level of concentration decreases, but no effect is found on the number of competitors.     

Mergers,coordinated effects and efficiency in the Portuguese non-life insurance industry

We evaluate the impact on market power and efficiency of a series of mergers on three Portuguese non-life insurance markets. We specify and estimate, with a panel of firm-level data, a structural model which includes: preferences, technology, and a market equilibrium condition. Firms' demand curves are not very elastic. Firms' technologies exhibit scale and scope economies and high cost efficiency scores. We find that, for the period following the mergers, there is no evidence of: (i) an increase in market power through coordinated behavior, or (ii) changes in cost efficiency levels. In addition, social welfare increased.     

Creating or destroying value through mergers and acquisitions: A marketing perspective

A majority of mergers and acquisitions are horizontal, combining companies within the same industry. They are most frequently motivated by a desire to achieve revenue and profit growth through market expansion or by adding new product lines, with cost efficiencies being a secondary agenda. However, the modest body of literature on post-merger performance using marketing metrics indicates that marketing objectives such as sales revenue and market share growth are rarely achieved. This paper reports on a detailed study of 45 M&A deals undertaken to develop a deeper understanding of how marketing performance is affected by mergers and acquisitions. Our results show that marketing performance improved along two dimensions — sales revenue growth, and a reduction in selling, marketing and administrative costs as a percentage of sales revenue, suggesting the realisation of synergies in these areas — economies of scale and scope. However, these benefits did not follow through into better returns on sales suggesting that the marketing cost economies are not sufficient to outweigh cost diseconomies in other parts of the business.     

The Gradual Response of Market Power to Mergers in the U.S. Steel Industry

Studies of the impact of horizontal mergers on market power typically impose an immediate adjustment of market power following a merger. This paper adopts an alternative procedure to estimate the effect of four mergers on market power in the U.S. steel industry. Namely, by estimating a switching regression model that incorporates profit-maximizing behavior, the results show that mergers generally increased market power in the steel industry. However, it did take some time for market power to fully adjust after each merger.     

Ecological investigation of firm effects in horizontal mergers

Using an ecological lens, we extend strategic management and industrial organization theory to investigate the performance effects of horizontal mergers. We theorize that firms differ in their ability to benefit from horizontal mergers; that the products involved in the merger differ in their ability to attain and sustain any increase in performance above their premerger level; and that resource niches in which each product competes differ in terms of competitive constraints. We then test these predictions using longitudinal data specified at the product–market level, a unit of analysis that is less influenced by aggregation bias than are industry, firm, and even line-of-business level data. Our findings demonstrate how organizational ecology, when coupled with strategic management and industrial organization economic theories, can enrich our understanding of horizontal mergers. Copyright © 2001 John Wiley & Sons, Ltd.     

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.     

Short and long run movements in U.S. merger activity

This paper uses the NPV approach to merger decisions to select variables which are expected to explain changes in the aggregate number of mergers of US manufacturing and mining firms over time. We test for and estimate a cointegrating relationship between such variables. We find that in the long run the number of mergers and acquisitions is positively related both to the level of manufacturing production and to the level of the nominal bond yield. A short run dynamic model is also presented. Annual changes in merger and acquisition activity were found to be positively related to current changes in Tobin's Q and changes in Q lagged one, two and four years; positively related to changes in the current bond yield but negatively related to changes in the yield in the previous year; and finally that changes in merger activity were related to the degree to which the number of mergers differed from the long run or equilibrium value in the previous year.     

Conglomerate mergers and subsequent industry effects

The focus of most studies of conglomerate mergers has been on the effects on companies involved. Of more direct relevance to antitrust policy is the question of industry effects of this type of merger. This article looks at eleven cases of “large firm/leading firm” conglomerate mergers completed between 1958 and 1970 and examines census data to see if structure or performance of the acquired “leading firm's” market was altered due to the merger. The results suggest that industry structure is not significantly affected, but that there may be adverse performance effects when the acquired firm is a leader in an unconcentrated market with substantial entry barriers.     

Endogenous horizontal mergers under cost uncertainty

This paper presents a study of endogenous horizontal mergers under cost uncertainty. Before knowing the exact values of their costs, firms decide sequentially whether or not to join a merger. After the merger decision is made, uncertainty is resolved and firms engage in Cournot competition with incomplete information about one another's costs. Due to production rationalization, the merged firms enjoy an advantage over non-merged firms in the sense that the merged firms' expected cost is lower. I show that mergers occur if and only if the uncertainty is large and that the larger the uncertainty, the greater the number of firms that will merge. Although a merger reduces competition and therefore hurts consumers, it improves productivity under cost uncertainty. I find that a merger increases social welfare whenever there are at least four firms in the industry before the merger.     

EFFICIENCY GAINS AND STRUCTURAL REMEDIES IN MERGER CONTROL*

This paper studies the role of structural remedies in merger control in a Cournot setting where (endogenous) mergers are motivated by prospective efficiency gains and must be submitted to an Antitrust Authority (AA) which might require partial divestiture for approval. From a merger policy perspective, this paper's main contribution is two‐fold. First, it shows that if mergers do not involve all firms in the industry, then merger remedies help the AA to increase consumer surplus only if assets are divested to competitors already in the market. Second, it presents a model which clarifies that there can only exist social costs to ‘over‐fixing’ the anticompetitive effects of a merger if merger review policy treats mergers as one‐time events. When a more dynamic view is taken of sequential merger review, then there can never be an ‘over‐fixing’ problem. In this case, however, remedies are shown to be needed to make myopic merger review optimal.     

Innovative productivity and returns to scale in the pharmaceutical industry

This study shows that firms in the pharmaceutical industry experience decreasing returns to scale in R & D as the level of R & D expenditures rises. The paper presents the results of our study of the innovative output of 16 pharmaceutical firms over a 19 year period. Given the strong correlation between R & D budgets and firm size, our study suggests the wave of mergers in the industry may yield less innovative productivity than managers expect.     

Policy Implications of the Effects of Concentration and Multimarket Contact in China’s Airline Market

Unlike many other mergers in developed countries, which might have been assessed and their effects estimated by antitrust authorities before being granted antitrust immunity, the airline mergers that swept China’s airline industry in 2002 occurred with no antitrust challenge. These mergers provide the opportunity to study important market power issues in China’s airline markets. Given that increased concentration and multimarket contact are the main legacies of an airline merger, the effects of mergers on these variables can raise the potential for the exercise of market power. However, an examination of the period 2002–2004 during which the Chinese airline mergers occurred shows that the resulting increased concentration and enhanced multimarket contact did not have important consequences for airfares in Chinese city-pair markets. The presence of Hainan Airlines appears to have played an important role in suppressing the airfares charged by China Eastern and China Southern.     

Inventory in mainland China: Historical, industry, and geographic perspectives

We review inventories in mainland China by evaluating the trajectory of aggregate inventories in recent decades, and then modelling the relationship of inventories in some 300,000 manufacturers with respect to volume (using cost of goods sold), industry (using SIC codes), and geographical location (using the 31 regions of China). We find that inventories generally exhibit economies of scale (in terms of cost of goods sold) in all but one industry (tobacco), and differ widely by province, with relatively high inventories in remote regions.We provide explanations for apparent diseconomies of scale for large unlisted firms, and reflect on why publicly listed manufacturers have significantly higher inventories than do unlisted firms. We note that manufacturing inventories as a proportion of manufacturing value-added are substantially higher in China than in the US The results may be employed for benchmarking and auditing of firms and managers, as well as for conducting due diligence for investment, mergers and acquisitions.     

Interfirm cooperation and structural change in the European automobile industry

The past quarter-century has seen the rapid growth of interfirm cooperative arrangements, on a global scale. In the automobile industry, the forms of cooperation have ranged from mergers and acquisitions, with each partner firm retaining its corporate identity and brand name, to very informal strategic partnerships. Because of its past fragmentation, the consolidation of the European industry into “producer groups” has been a main feature of structural change. Arguably, this development and the formation of rent-seeking coalitions within the European Union were of greater significance than companies' purely technology-oriented cooperative ventures. As a result of the industry members' individual and collective rent-seeking, at the national and EU levels respectively, large price disparities among national markets have persisted. Regulatory barriers as well as the noncompetitive behavior of firms continue greatly to influence the automotive sector, despite the Union's ambitious vision of “Europe 92” as the final stage in the development of an open market for products and factors. Whatever benefits automobile producers may have derived from integration, it has done little so far to enhance consumer 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.     

The Supreme Court and Beer Mergers: From <Emphasis Type="Italic">Pabst/Blatz</Emphasis> to the DOJ–FTC Merger Guidelines

The beer industry in the U.S. has undergone significant structural change in the post-WWII period. The industry also was the object of prominent antitrust challenges to horizontal mergers proposed during this time frame. This paper documents the trend of increasing seller concentration in the brewing industry and assesses the role that mergers played in this structural transformation. We also analyze the change in merger policy that has taken place since the Supreme Court originally addressed mergers in the beer industry as compared to current antitrust enforcement under the DOJ–FTC Merger Guidelines and recent judicial decisions.     

纵向一体化的选择及其影响因素——基于能源行业的实证分析

文章研究中国能源行业的纵向一体化状况,以能源企业的纵向并购为例运用Logit模型分析了能源企业选择纵向一体化方式时考虑的因素。研究结果表明,策略效应和交易成本对能源企业采用纵向一体化的意愿影响较大,生产成本和不确定性的影响较小。     

Vertical integration and innovation

Innovation is a driving force for most industries, where it moreover affects many stages of the vertical chain. We study the impact of vertical integration on innovation in an industry where firms need to undertake risky R&D investments at both production and distribution stages. Vertical integration brings better coordination within the integrated firm, which boosts its investment incentive at both upstream and downstream levels. However, it is only mutually beneficial for firms to integrate when both upstream and downstream innovations are important. When innovation is irrelevant at one level, firms favor instead vertical separation. The analysis provides insights for the wave of mergers and R&D outsourcing observed in the pharmaceutical industry and other vertically related industries.