Effects of mergers on processed milk market in Kenya

Abstract

PurposeThe purpose of this paper is to determine the effects of the mergers and acquisitions on market prices, consumer welfare and aggregate profit of the merging firms and those of the non-merging firms and, therefore, answer the question on the overall effect of mergers and acquisitions on different performance measures on milk market using data from all the 34 licensed and active milk processors in Kenya.Design/methodology/approachA new model of analysis as developed from the Canadian Competition Policy maker, i.e. The Canadian Competition Policy merger simulation model, was used.FindingsThe study found that mergers and acquisitions lead to increase in market shares of the merging firms. The study also found that mergers and acquisitions have a significant effect on product price in the processed milk market. From the findings, the study concludes that mergers and acquisition not only lead to an increase in market shares of both merging and non-merging processed milk firms but also create market dominance due to reduction in the number of market players in the industry.Research limitations/implicationsThe study uses the data for the licensed and active milk processors in the industry. The dormant and the non-licensed processors are excluded. Future studies can use the farm-gate prices as opposed to final consumer prices for the processed milk market.Originality/valueThe study contributes toward providing information on the effect of buyouts on social welfares, prices, market share, profitability and other relevant market equilibrium performance measures in the processed milk market in Kenya.