M&As in European and North American Energy Markets: Implications for the Assessment of Legal and Ownership Unbundling - An Event Study Analysis

Abstract

Competition and antitrust law aims to prevent companies from engaging in anti-competitive behavior and to promote and protect market competition. In this context, mergers and acquisitions are under particular scrutiny, since they are often assumed to be motivated by possible market power increases, thus adversely affecting market efficiency. With a view to recent efforts within the European Union to increase competition law effectiveness in the energy market (i.e. legal and ownership unbundling as policy tools geared towards forcing corporations into demerging transactions), an event study approach is applied in this paper to evaluate the market response to the announcement of mergers and acquisitions in EU and US energy markets and to determine whether or not the hypothesis that M&As result in increased market power of the joined companies actually holds true. Findings indicate that increases in market power are not the main motive for energy market M&As. The results thus oppose the general adequacy of legal and ownership unbundling as veritable competition law instruments against market imperfections and failures, but indicate that unbundling can indeed be a viable policy solution if implemented on a case-by-case basis.