Do Mergers Result in Collusion? (original) (raw)

Assessment of Mergers Inducing Coordinated Effects in the Presence of Explicit Collusion

World Competition: Law and Economics Review, Vol. 31, No. 4., 2008

This article will analyse the issue of the assessment of the likelihood of a merger in a cartelised market inducing or enhancing coordinated effects.Although there is decisional practice on the impact of past coor- dination on the assessment of a merger’s likelihood of inducing coordinated effects, such decisional guidance is very rare as regards the assessment of mergers in cartelised markets. Mergers in cartelised markets should be assessed on a case-by-case basis.A presumption of illegality for such mergers should be avoided. A case-by-case analysis focusing on the pre-merger and post-merger market structure as well as on the incentives for continuing the collusion in the post-merger market has significantly more merit. Mergers in cartelised industries are not the cause of the adverse impact on competition.What should be assessed is the harm of the merger itself in the already anticompetitive market. If the merger induces a significant impediment to the existing level of reduced competition, then the merger should not be cleared (at least not without remedies). The concept of “significant” assumes great importance in such circumstances, as the merger may lead to an impediment but such impediment is not always significant in a market where explicit collusion occurs.

On the Coordinated Eects of Conglomerate Mergers

2008

Issues of multimarket contact have recently been raised in European merger cases. Coordinated eects have thus been recognized as a potential reason for blocking conglomerate mergers (or hor- izontal mergers with conglomerate aspects). In this paper we analyze the impacts of incremental conglomerate mergers on the scope for collusion. In a simple benchmark model we show that the ability to collude does not depend on the number of …rms that are present in multiple markets. We derive a neutrality benchmark for mergers and show that there is a pivotal merger that creates all of the collusion potential. We then discuss a bargaining eect of conglomerate eects that generates slightly dierent predictions. We then show the fundamental dierence between mergers that link asymmetric markets with symmetric …rms from mergers with symmetric markets but complementary asymmetries between …rms. While in the …rst case the price in one market typically falls as a result of coordinated eects, all prices...

Mergers , Difference in Difference and Concentrated Markets : Why Firms Do Not Increase Prices ?1

Difference-in-Difference (DiD) methods are increasingly used in analyzing the impact of mergers on pricing and other market equilibrium outcomes. Using the evidence from an exogenous merger between two, retail gasoline companies in a specific market in Spain, this paper shows how concentration did not cause a price increase. In fact, the conjectural variation model concludes that the existence of a collusive agreement before and after the merger explains this result, not the existence of efficient gains. For this reason, it is recommended that a conjoint and multilateral effects analysis on merger cases, be conducted.

Asymmetric Collusion and Merger Policy

2007

In their merger control, EU and the US have considered symmetric size distribution (cost structure) of …rms to be a factor potentially leading to collusion. We show that forbidding mergers leading to symmetric market structures can induce mergers leading to asymmetric market structures with higher risk of collusion, when …rms face indivisible costs of collusion. In particular, we show that if the rule determining the collusive outcome has the property that the large (ef-…cient) …rm bene…ts su¢ ciently more from collusion when industry asymmetries increase, collusion can become more likely when …rms are moderately asymmetric.

Evidence for the Effects of Mergers on Market Power and Efficiency

2016

Study of the impact of mergers and acquisitions (M&As) on productivity and market power has been complicated by the difficulty of separating these two effects. We use newly-developed techniques to separately estimate productivity and markups across a wide range of industries using detailed plant-level data. Employing a difference-indifferences framework, we find that M&As are associated with increases in average markups, but find little evidence for effects on plantlevel productivity. We also examine whether M&As increase efficiency through reallocation of production to more efficient plants or through reductions in administrative operations, but again find little evidence for these channels, on average. The results are robust to a range of approaches to address the endogeneity of firms' merger decisions. * This paper has benefitted from conversations with Peter Schott and Nicholas Sly, as well as participants of seminars at the London School of Economics, the School of Advanced International Studies, the Stanford RDC Conference, and the Annual Meeting of the International Industrial Organization Society. We thank Brian Hand and Dominic Smith for outstanding research assistance. Any opinions and conclusions expressed herein are those of the authors and do not necessarily represent the views of the U.S. Census Bureau, the Board of Governors or its research staff. All results have been reviewed to ensure that no confidential information is disclosed.

Estimating the Coordinated Effects of Mergers

Mergers can be blocked if they increase the likelihood of coordination. This paper presents the first empirical coordinated effects merger simulation model in a differentiated product market. We study the network server market. We find that the incentives to coordinate actually fell as a result of the merger between HP and Compaq and show, contrary to conventional economic logic, that incentives to coordinate will ceteris paribus often fall in this way after a merger. We extend the model to empirically examine the impact of multi-market contact, a competitive fringe, and the presence of an antitrust authority imposing punishments on tacit colluders in the form of fines.

Mergers and the Market Concentration Doctrine: Evidence from the Capital Market

The Journal of Business, 1985

The market concentration doctrine predicts that a horizontal merger is more likely to have collusive, anticompetitive effects the greater the merger-induced change in industry concentration. Since a collusive, anticompetitive merger generates an increase in the industry's quality-adjusted product price (or a decrease in factor prices), it also follows from the doctrine that the mergerinduced expected benefits to the product market rivals of the merging firms should be an increasing function of the concentration change. The empirical results of this paper, which are based on the industry wealth effect of a large sample of horizontal mergers, including cases found in violation of antimonopoly laws, fail to support this prediction. This conclusion is robust with respect to assumptions concerning the probability that a proposed merger will be prevented by the law enforcement agencies, and it continues to hold after transforming the industry wealth effect into a hypothetical, constant expected change in the industry's product price. The results imply that the levels of concentration and market shares found in the Department of Justice's merger guidelines are unlikely to identify truly anticompetitive mergers. *

Merger Control in the European Union and The United States: Just the Facts

European Competition Journal, 2011

Using a combination of public and internal information, this paper compares and contrasts EU and US merger policies. Common economics seems to lead both authorities to consider remarkably comparable portfolios of mergers once the nominal differences in the regimes (US reviews more cases) are addressed. Vertical mergers account for less than ten percent and potential competition matters for around five percent of all mergers in both jurisdictions, while purely conglomerate mergers are extremely rare or non-existent. The share of collusion investigations fall over time in both jurisdictions. However, the US relies on collusion theory more than three times as often as the EU, where 85 percent of the horizontal cases concern dominance. Across both regimes, roughly one eighth of all recent horizontal mergers have been analyzed as non-dominance unilateral-effects cases. Only minor differences in the average probability of challenge are observed when controlling for market share. We also find that the EU is more prone to accept (or require) weak remedies and much less likely to consider efficiencies. The 2004 EU reforms seem to be leading towards at least some convergence on enforcement policy.

EFFICIENCY GAINS AND STRUCTURAL REMEDIES IN MERGER CONTROL*

The Journal of Industrial Economics, 2010

This paper studies the role of structural remedies in merger control in a Cournot setting where (endogenous) mergers are motivated by prospective efficiency gains. Every merger has to be submitted to an Antitrust Authority (AA) which, apart from blocking or unconditionally approving it, might approve a modified version of the concentration where divestitures are required. Some important merger policy implications can be drawn. First, when divestitures are required, the AA over-fixes, i.e., goes beyond the recreation of the level of competition that existed prior to the transaction. Second, by insisting in overfixing, the AA may discourage firms to look for more efficient mergers. Finally, structural remedies are shown to open up new merger opportunities to firms.

The effects of mergers: an international comparison

International Journal of Industrial Organization, 2003

This paper analyzes the effects of mergers around the world over the past 15 years. We utilize a large panel of data on mergers to test several hypotheses about mergers. The effects of the mergers are examined by comparing the performance of the merging firms with control groups of nonmerging firms. The comparisons are made on profitability and sales. The results show that mergers on average do result in significant increases in profits, but reduce the sales of the merging firms. Interestingly, these post merger patterns look similar across countries. We also did not find dramatic differences between mergers in the manufacturing and the service sectors, and between domestic and cross-border mergers. Conglomerate mergers decrease sales more than horizontal mergers. By separating mergers into those that increase profits and those that reduce them and by then examining the patterns of sales changes following the mergers, we determine the effects of mergers on efficiency and market power. Our results suggest that those mergers that decrease profits and efficiency account for a large proportion. However, we can also identify mergers that increase profits by either increasing market power or by increasing efficiency. The first conclusion seems to be a more likely explanation for large companies, whereas the latter is likely to be true for small firms. We also thank J. Jung for excellent research assistance. Financial support of the "Jubiläumsfonds der Oesterreichischen Nationalbank", project 8861, is gratefully acknowledged.