Competitive Effects Of Mergers Research Articles

Competitive effects of mergers and of spectrum divestment remedies in mobile telecommunication markets

Motivated by recent mergers in mobile telecommunications markets, this paper investigates the merger induced effects on consumer surplus in a setting where: (i) the industry is modeled as a triopoly in which firms sell products that are both horizontally and vertically differentiated; (ii) the merging parties are able to pool their spectrum assets; and (iii) the joint management of pooled spectrum assets enables merging parties to offer a better quality service, for which customers are willing to pay more. From a merger policy perspective, our contribution is two-fold. First, we conclude that mergers may benefit consumers even in the absence of any cost-related efficiencies and establish under which circumstances this is more likely to occur. Second, our results also indicate that when the merger has a negative impact on consumer surplus, remedies based on reallocation of spectrum are not very likely to change this outcome. The reason is that the circumstances under which the merger is unlikely to benefit consumers are precisely those under which spectrum reallocation will be unable to fix merger-induced anticompetitive effects.

The Competitive Effects of Mergers with Cournot Competition

This paper provides a full characterization of the price effects of horizontal mergers in the Cournot model with heterogeneous firms and constant returns to scale. We show that the price change brought about by a merger only depends on the smaller merging firm's share and the number of firms, but is independent of the distribution of shares among other firms. Price effects are determined by factors that are either directly observable by competition authorities or can be bounded under relatively mild assumptions on demand curvature or pass-through. Estimates based on concentration measures can instead be seriously misleading. We also provide closed-form solutions for calibration that approximate merger effects on the basis of simple pre-merger parameters.

Market Concentration in the Antitrust Analysis of Horizontal Mergers

This handbook chapter appears in Antitrust Law & Economics (Keith Hylton, ed. 2010). It describes the role of market concentration in the legal framework for the antitrust review of horizontal mergers and evaluates the extent to which modern economic analysis supports a role for concentration in that review. The chapter examines market definition, the predicate for measuring market shares and market concentration, and the role of market shares and concentration in the analysis of the coordinated and unilateral competitive effects of merger. The central issue considered is when and how market shares, and market concentration statistics derived from them, form an appropriate basis for presuming harm to competition from merger. This revision corrects an error in the published chapter.

Event Studies in Merger Analysis: Review and an Application Using U.S. TNIC Data

There is a growing concern that U.S. merger control may have been too lenient, but empirical evidence remains limited. After reviewing event studies as a method to acquire empirical insights into the competitive effects of mergers, I propose a novel application using Hoberg-Phillips TNIC data. This application allows for the ready approximation of abnormal stock market returns of likely competitors to 1,751 of the largest U.S. mergers since 1997. I document that likely competitors experience on average an abnormal return of close to one percent around a merger announcement. Abnormal returns are also strongly associated with concerns of market power, which suggests that competitors benefit at least in part because of an anticipation of anti-competitive effects -- and hence insufficient merger control.

ICLE Comments, Whether the U.S. Economy Has Become More Concentrated and Less Competitive

These comments were submitted to the FTC as part of its hearings on “Competition and Consumer Protection in the 21st Century.” In these comments, we note three high level points: (1) Antitrust policy must avoid the simplistic inference of competitive effects from market structure; (2) HHIs are insufficient to guide decisions regarding the likely competitive effects of mergers; and (3) that simplistic inferences of competitive effects based on theoretical or econometric evidence from other industries are inappropriate and unpersuasive.

Non-Price Effects of Mergers

Mergers may impact price as well as non-price forms of competition in the form of product quality, variety, service, and innovation. This special issue of the Antitrust Bulletin examines the increasing importance of non-price dimensions of competition in merger analysis, the challenges that non-price effects pose for antitrust merger enforcement, and approaches for enhancing the analysis and role of non-price competition in merger enforcement decisions and competition policy responses. This is a critical discussion that informs the debate over the importance and adequacy of the consumer welfare standard, which is the prevailing standard for evaluating the competitive effects of mergers and nonmerger conduct.

Predicting Competitive Effects from Prescription Drug Mergers: How Standard Economic Analysis Can Go Wrong

Key insights on the unilateral competitive effects of mergers derive from economic models built on behavioral assumptions and mathematical regularity conditions ensuring that merger effects are determined by the premerger margin of competition between products combined. But the usual behavioral assumptions and regularity conditions might not hold for prescription drugs, and the usual insights might not apply. Analysis of a simple model based on the facts of FTC v. Lundbeck shows that weak competition between two therapeutic substitute drugs plausibly results in monopoly prices, so merging them has no effect on their prices.

Inconvenient Truths and Constructive Suggestions on Merger Retrospective Studies

A merger retrospectives research agenda should be pursued. It should stress careful evaluation of agency assessments of the competitive effects of mergers in the hope of improving the accuracy of the enforcement process. But several inconvenient truths may prevent much from being learned, and “a little learning is a dangerous thing.”

What Can Be Learned About the Competitive Effects of Mergers from “Natural Experiments”?

Click to increase image sizeClick to decrease image size Notes 1. US Department of Justice and Federal Trade Commission, Horizontal Merger Guidelines (2010). Available at: http://www.justice.gov/atr/public/guidelines/hmg-2010.pdf 2. Indicator variables for the diagnosis categories are included in the econometric model, but parameter estimates are not reported in the paper. However, six of the diagnosis categories are obstetric related, so if quality improved significantly in that specialty, quality‐adjusted price changes might be smaller than the data indicate. 3. In general, these and other considerations suggest that it may be useful to allow the DID coefficient to vary across diagnosis category to allow for the possibility that the merger had differing effects on the categories.

Entry and Exit Event Analysis

Economists have analyzed incumbent responses to entry and exit by competitors as probative of competitive effects in several recent high profile mergers. This chapter argues that an incumbent's response to entry or exit may be probative of competitive effects of merger because these responses reveal whether premerger pricing is competitive and, therefore, whether the elimination of one competitive constraint through merger is likely to change competitive outcomes. This interpretation contrasts with the more common interpretation that simulates postmerger prices by equating the effects of entry and exit with merger. Such simulation may either overstate or understate the effects of merger, depending on the circumstances. This chapter also considers two types of issues that may arise in entry and exit event analysis. The first is in the interpretation of the estimated causal effects of entry and exit on incumbents. The second is in the estimation of these effects.

The competitive effects of mergers between asymmetric firms

This paper evaluates both efficiency increasing and efficiency decreasing mergers in a procurement setting in which firms differ in the likelihood that they have high production costs. Profitable efficiency increasing mergers often decrease the expected price, but profitable efficiency decreasing mergers always increase it. For a particular pair of firms, there may be no profitable mergers. If there are, then the most profitable merger may decrease efficiency. Consequently, merging firms that are able to choose their postmerger level of efficiency may profitably elect to decrease it.

Focusing on Demand: Using eBay Data to Analyze the Demand for 
 Telescopes

This paper analyzes the value of using data from on-line auctions to determine product market definitions and competitive effects of mergers. Traditionally this type of demand analysis has been based on retail transaction data, particularly scanner data. However, such data is not always readily available and may be difficult to interpret. Auction data, particularly data from on-line auctions like eBay may be easy to access and may be much easier to interpret. The authors analyze data from a series of auctions for 3 different types of telescopes, held over a 8 week period. The results suggest that the demand for telescopes is very elastic and that the two types of telescope designs (the Schmidt-Cassegrain and the Maksutov-Cassegrain designs) are in different product markets, supporting a position taken by the Commission in a recent case.

Competitive Effects of Mergers and Acquisitions of Exploration Drilling Contractors on the Global Mineral Exploration Industry

The exploration drilling industry has traditionally been made up of small to medium-sized companies ranging from family-run businesses to the larger companies. These companies normally operate in a localised geographical area, servicing the local industry. However, a trend has emerged whereby giant corporations are steadily taking over every profitable drilling company willing to sell for a cash windfall. This is having two opposing effects:• First, the drilling industry is globalising, which is not detrimental to the exploration industry. Expertise is pooled, equipment, management and personnel are optimised and financial resources for high efficiency and engineering R & D are available, thus benefiting the industry they serve.• The other effect, which is worrying to the exploration industry, is that three major drilling corporations will control the global drilling industry in the foreseeable future. An oligopoly and conceivably a duopoly is emerging, and the potential to control prices and stifle competition will be evident.In this article the author examines the trend, the concerns and the implications of such a scenario and the problems of global regulation within a competition law framework.

The Competitive Effects of Mergers: Stock Market Evidence from the U.S. Steel Dissolution Suit

We apply and extend the Eckbo-Stillman event-study methodology to investigate the competitive effects of the U.S. Steel consolidation. In contrast to previous event studies, we examine the stock market reactions of downstream firms, thereby enabling us to estimate the net effect of a merger or antitrust action on product market prices. Specifically, we examine the stock market reactions of U.S. Steel, major steel industry rivals, and downstream customers to events from the unsuccessful dissolution suits begun in 1911 and decided in 1920. The pattern of reactions implies that the dissolution of U.S. Steel would have lowered steel prices and raised output.