Examining antitrust policy towards horizontal mergers

Abstract

Abstract A horizontal merger must result in higher product prizes to consumers to be anticompetitive or socially inefficient. Higher product prices, however, imply increased profits for rivals to the merging firms. Therefore, if a horizontal merger is to reduce consumer welfare, rival firms must rise in value at the time of events increasing the probability of the merger and fall in value when the probability of the merger declines. this paper uses daily stock return data from a sample of rivals to 11 horizontal mergers attempted between 1964 and 1972 that were challenged by the antitrust enforcement agencies. The paper tests the hypothesis that, but for the government's action, these mergers would have resulted in higher product prices. On balance, the data favor the null hypothesis of no anticompetitive effect.