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Industry Concentration and Welfare - On the Use of Stock Market Evidence from Horizontal Mergers

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  • Fridolfsson, Sven-Olof

    (Research Institute of Industrial Economics)

  • Stennek, Johan

    (Gothenburg University)

Abstract

There is diverging empirical evidence on the competitive effects of horizontal mergers: consumer prices (and thus presumably competitors' profits) often rise while competitors' share prices fall. Our model of endogenous mergers provides a possible reconciliation. It is demonstrated that anticompetitive mergers may reduce competitors' share prices, if the merger announcement informs the market that the competitors' lost a race to buy the target. Also the use of "first rumor" as an event may create similar problems of interpretation. We also indicate how the event-study methodology may be adapted to identify competitive effects and thus, the welfare consequences for consumers.

Suggested Citation

  • Fridolfsson, Sven-Olof & Stennek, Johan, 2006. "Industry Concentration and Welfare - On the Use of Stock Market Evidence from Horizontal Mergers," Working Paper Series 682, Research Institute of Industrial Economics.
    • Handle: RePEc:hhs:iuiwop:0682
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    References listed on IDEAS

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    Cited by:

    1. Carletti, Elena & Ongena, Steven & Siedlarek, Jan-Peter & Spagnolo, Giancarlo, 2015. "The Impact of Merger Legislation on Bank Mergers," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 530, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    2. Tomaso Duso & Klaus Gugler & Florian Szücs, 2013. "An Empirical Assessment of the 2004 EU Merger Policy Reform," Economic Journal, Royal Economic Society, vol. 123(11), pages 596-619, November.
    3. Patrice Bougette & Florent Venayre, 2008. "Contrôles a priori et a posteriori des concentrations : comment augmenter l'efficacité des politiques de concurrence," Revue d'économie industrielle, De Boeck Université, vol. 0(1), pages 9-40.
    4. Joseph A. Clougherty & Tomaso Duso, 2010. "Using Rival Effects to Identify Synergies and Improve Merger Typologies," CIG Working Papers SP II 2010-13, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
    5. Budzinski, Oliver, 2012. "Impact evaluation of merger control decisions," Ilmenau Economics Discussion Papers 75, Ilmenau University of Technology, Institute of Economics.
    6. Benoît Menoni & Lionel Janin, 2007. "Le contrôle des concentrations en France : une analyse empirique des avis du Conseil de la concurrence," Économie et Prévision, Programme National Persée, vol. 178(2), pages 93-114.
    7. Mats Bergman, 2008. "Quis Custodiet Ipsos Custodes? or Measuring and Evaluating the Effectiveness of Competition Enforcement," De Economist, Springer, vol. 156(4), pages 387-409, December.
    8. Oliver Budzinski, 2011. "Impact Evaluation of Merger Decisions," Working Papers 112/11, University of Southern Denmark, Department of Sociology, Environmental and Business Economics.
    9. Budzinski, Oliver, 2012. "Empirische Ex-Post Evaluation von wettbewerbspolitischen Entscheidungen: Methodische Anmerkungen," Ilmenau Economics Discussion Papers 69, Ilmenau University of Technology, Institute of Economics.
    10. Angelov, Nikolay, 2006. "Modelling firm mergers as a roommate problem," Working Paper Series 2006:10, Uppsala University, Department of Economics.
    11. Fridolfsson, Sven-Olof & Stennek, Johan, 2005. "Hold-up of anti-competitive mergers," International Journal of Industrial Organization, Elsevier, vol. 23(9-10), pages 753-775, December.
    12. Keller, Andreas, 2010. "Competition effects of mergers: An event study of the German electricity market," Energy Policy, Elsevier, vol. 38(9), pages 5264-5271, September.
    13. Lars Sørgard, 2009. "Optimal Merger Policy: Enforcement Vs. Deterrence," Journal of Industrial Economics, Wiley Blackwell, vol. 57(3), pages 438-456, September.

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    More about this item

    Keywords

    Mergers & Acquisitions; Event Studies; Antitrust; In-play; Coalition Formation;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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