Horizontal acquisitions, merger rents, and non-price competition – a case study from the machinery industry

Abstract

Direct claims that a merger is executed to achieve market power are rare, as market rents are often seen as attempts by merging firms to expropriate wealth from customers by limiting output, raising product prices, and/or lowering factor prices (Stigler 1964; Chatterjee 1986; Trautwein 1990; Sharur 2005). Even though impact on social welfare can be offset by an increase in non-price variables (Eckbo 1983; Focarelli and Panetta 2003), it is difficult for economic researchers with their coarse information set to really understand the implicit nature of market power synergies (Andrade, Mitchell, and Stafford 2001; Pautler 2001). We circumvent the methodological shortcomings of larger empirical studies and examine the sources and mechanics of market power effects by focusing on the merger of Schuler and Mueller Weingarten, as this acquisition allows to illustrate strong evidence for market power rents and post-merger collusion.KeywordsMarket PowerAbnormal ReturnAnnouncement DateProduct PortfolioAnnouncement ReturnThese keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.