Static and dynamic merger effects: A market share based empirical analysis

Abstract

Merger-specific efficiencies continue to play a relatively small role in merger enforcement and merger retrospectives. Motivated by the paucity of empirical analyses of merger-specific efficiencies, we examine a merger's market share effects. Standard merger theory predicts that if merger-specific efficiencies are present, the merged firm should regain market share in the long run. We estimate short- and long-run merger effects on market shares from the divestiture of Texaco's Canadian assets. Using a difference-in-difference specification we compare changes for the merging firm against changes for other vertically integrated firms in the same market. A general equilibrium type effect renders our estimates biased but the sign of each effect is consistently estimated. Our approach is a useful complement to across-market comparisons, which are often hindered by the difficulty of finding control markets that experience the same supply and demand shocks as the treatment markets.