Horizontal Mergers Research Articles

Quality of care after a horizontal merger between two large academic hospitals

BackgroundHospital mergers remain common, but their influence on healthcare quality varies. Data on effects of European hospital mergers are ill defined, and academic hospitals in particular. This case study assesses early quality of care changes in two formerly competing Dutch academic hospitals that merged on June 6, 2018. MethodsStatistical process control and interrupted time series analysis were performed. All adult, non-psychiatric patients, admitted between 01-03–2016 and 01-10-2022 were eligible for analysis. Primary outcome measure was all cause in-hospital mortality (or hospice), secondary outcomes were unplanned 30-day readmissions to same hospital, length of stay, and patients’ hospital rating. Data were obtained from electronic health records, and patient experience surveys. FindingsThe mean (SD) age of the 573 813 included patients was 54·3 (18·9) years. The minority was female (277 817, 48·4 %), and most admissions were acute (308 597, 53·8 %). No merger related change in mortality was found in the first 20 months post-merger (limited to the pre-Covid-19 era). For this same period, the 30-day readmission incidence changed to a downward slope post-merger, and the length of stay shortened (immediate level-change −3·796 % (95 % CI, −5·776 % to −1·816 %) and trend-change −0·150 % per month (95 % CI, −0·307 % to 0·007 %)). Patients’ hospital ratings seemed to improve post-merger. InterpretationIn this quality improvement study, a full- and gradual post-merger integration strategy for a Dutch academic hospital merger was not associated with changes in in-hospital mortality, and yielded slight improved results for secondary quality of care outcomes.

Mergers, firm size, and volatility in a granular economy

We study the firm dynamics associated with mergers and acquisitions (M&A) and their implications at the micro and macro levels. Our paper presents three main findings: (i) mergers generate a more fat-tailed firm-size distribution, thereby amplifying granular fluctuations and increasing aggregate volatility; (ii) the impact of mergers depends on strategic market power and endogenous markups; and (iii) under endogenous markups, we provide a novel characterization of the firm size-volatility relationship in which volatility declines disproportionately with size. We build a quantitative model of domestic horizontal mergers and find a sizeable impact of mergers on aggregate volatility using counterfactual analysis.

Three Faces of Innovation Competition: Choosing the Framework for Horizontal Merger Assessment

Abstract This article discusses the assessment of horizontal mergers and harm to innovation when there is innovation competition. The goal is to establish a methodology for selecting the appropriate analytical framework for each situation, outlining mechanisms for recognizing innovation competition, defining relevant markets, evaluating the competitive significance of firms, identifying suitable theories of harm, and gathering pertinent evidence for each scenario. We review the literature on Competition Policy and on Economics of Innovation and take examples from the US and European case law. We also briefly discuss the strategic management literature to provide insights for the assessment. Considering post-merger reductions on innovation incentives as harm to innovation, we find differences of traditional merger procedure adequacy and challenges to build evidence, considering three faces of innovation, including possible combinations of these faces within a same merger case: (i) continuous innovation efforts in the product market, (ii) ongoing innovation efforts for developing new products, and (iii) future innovation efforts. In instances where the conventional approach to mergers falls short, exploring a capabilities-based assessment is recommended. Given the gaps found in the existing literature, we provide insights to the analysis as steps towards an agenda of capabilities-based merger assessment.

Horizontal mergers between public and private firms in vertically-differentiated markets

This paper studies the impact of mergers between public and private firms in vertically-differentiated markets on product repositioning, consumer surplus, and social welfare. We analyze a game-theoretical model with a public and two private firms in which the public firm (private firms) aim to maximize social welfare (profits). We examine four merger scenarios: the merger of two private firms forming a new private firm to produce either one or two products, denoted by scenarios S1 and S2, respectively, competing with a public firm; and the merger of a public firm and one private firm forming a new public firm to produce either one or two products, denoted by scenarios C1 and C2, respectively, competing with the other private firm. Our findings suggest that when the cost reduction for the merger focusing on single-product production is low, scenario C2, where the new public firm produces two products with the highest and lowest quality levels, leads to the highest social welfare and consumer surplus. Conversely, in scenario C1, where the new public firm produces one product with the highest quality level, the largest social welfare and consumer surplus are observed.

Unilateral effects of mergers with price regulation and quality competition

Merger screening tools are increasingly used in the review of horizontal mergers. They offer insights into the firms’ incentives to increase prices post-transaction. This paper proposes a new indicator, the Quality Reduction Incentive (QRI) index, that can be applied when competition is based on quality rather than prices, as in some healthcare and higher education markets. It represents the minimum percentage reduction in marginal costs necessary to eliminate the merging firms’ incentives to lower quality. Therefore, it can be directly compared to the cost efficiency gains claimed by the parties. Two versions of the QRI index are provided. The first one ignores the feedback effects between the parties, while the second one, more comprehensive, incorporates these interactions. The paper then explains how antitrust authorities can apply this tool with relatively little data.

Should We Expect Merger Synergies to be Passed Through to Consumers?*

When reviewing horizontal mergers, antitrust agencies balance anticompetitive incentives, resulting from market power, with procompetitive incentives, created by efficiencies, assuming complete information and static, simultaneous move Nash equilibrium play. These models miss how a merged firm may prefer not to pass through efficiencies when rivals would respond by lowering their prices. We use an asymmetric information model, where rivals do not observe the size of the realized cost efficiency, to investigate how this incentive could affect post‐merger prices. We highlight how the strength of this incentive will depend on the market structure of non‐merging rivals and discuss alternative settings where similar issues arise.

The 2023 Merger Guidelines and The Role of Economics

Relying heavily on legal analysis, the 2023 Merger Guidelines argue for a fundamental shift in antitrust enforcement that places more emphasis on protecting competitors and less on protecting the beneficiaries of competition. It is up to courts, not economists, to ascertain whether this interpretation of antitrust law is correct. But economists can and should analyze the likely economic effects. Evidence that antitrust enforcement has permitted some markets to be overly concentrated justifies the tightening of horizontal merger enforcement that is signaled by these guidelines. Evaluating the elimination of double marginalization from vertical mergers as a part of an efficiency defense rather than as a primary economic effect reflects a fundamental misunderstanding of the economics of vertical mergers. At a minimum, these guidelines will further damage the reputation of the DOJ and FTC among competition policy enforcers in other countries. A potentially more serious cost will be if foreign competition authorities use these guidelines to justify enforcing their own laws to protect inefficient domestic firms against foreign competition.

Price Effects of Horizontal Mergers: A Retrospective on Retrospectives

Abstract This comprehensive review of ex post merger studies assesses the price effects of horizontal transactions to determine whether there are common post-merger price effects, both overall and in specific markets. The aim is to derive implications for policy makers and competition authorities in terms of effective merger enforcement and competition policy. By combining and further analysing the results of 52 retrospective studies on 82 mergers or horizontal transactions, it can be shown that the sector in which the respective transaction takes place alone is not a strong indicator of the direction of price-related merger effects. In contrast, the ‘size’ or ‘importance’ of a transaction as well as market concentration seem to be correlated with post-transaction price increases, especially in already highly concentrated markets. Overall, this meta-study shows the importance of ex post case studies for improving ex ante merger control: although generalizations can only be made with caution, the subsequent analysis of a case and its ex post observable outcome can provide useful information for future merger enforcement in general, either in the same industry and/or with similar case characteristics, as well as for competition policy regulators.

Evolution of the Merger Guidelines: Is This Fox Too Clever by Half?

The 2023 Merger Guidelines make some notable improvements over the 2010 Horizontal Merger Guidelines. They give greater emphasis to the idea that predicting the competitive effects of a proposed merger is inherently difficult and that to block a merger the government need only show a risk that the merger may substantially lessen competition – not that it will do so. They also give greater emphasis to dynamic competition and innovation – especially with regard to acquisitions of potential entrants – and they add useful material on multi-sided platforms. However, the treatment of market definition in the 2023 Merger Guidelines may weaken horizontal merger enforcement by demoting the role of the “hypothetical monopolist test,” which is used to define markets for the purpose of measuring market shares, and by removing extensive material from prior guidelines that explained why market shares measured in narrower markets tend to be more informative than market shares measured in broader markets. The 2023 Merger Guidelines lower the market concentration thresholds that trigger a presumption by the antitrust enforcement agencies that a merger may substantially lessen competition, but the enforcement data suggest that change will have little effect in practice. The 2023 Merger Guidelines also may lead to less effective deterrence of harmful mergers because they are not well targeted at the mergers that are most likely to substantially lessen competition. One cannot prioritize everything.

Losses from horizontal merger and collusion

We show that the implications of a merger on collusion sustainability change significantly from the extant literature if merger is not profitable in the punishment subgame where firms play non-cooperative Cournot–Nash game. Merger either does not affect collusion sustainability or it may decrease or increase collusion sustainability, depending on the output allocation for the merged firm. Our paper has the following implication for antitrust policies. If merger is observed, the authority will expect an industry-wide collusion, since merger will occur in our analysis provided it increases collusion sustainability.

Horizontal Mergers and Supplier Power

Supplier market power—such as the ability of branded goods suppliers to dictate terms to retailers—is an important feature of many markets. We show that supplier power can counteract the effects of downstream mergers on consumer prices where there are two-part contracts. This is because greater market power allows suppliers to set contracts that internalise partially the impact of the merger on downstream prices. Post-merger, the supplier reduces the per-unit price at which it supplies the merged downstream firms, with the aim of maintaining total industry profitability—and then recoups the profits via a larger fixed fee. We modify the standard upward pricing pressure (UPP) formula to account for the supplier’s response to a horizontal merger in the downstream market, while preserving much of the simplicity of the standard approach.

Article: EU Merger Control After The Grand Chamber’s Judgment In Commission V. CK Telecoms Investments

The Grand Chamber set aside the judgment of the General Court in CK Telecoms having found eight errors in law. This paper dissects the judgment of the Grand Chamber to illustrate and explain the differences between the two judgments as well as the significance of these differences. The Grand Chamber clarifies the standard of proof and confirms that the analysis of unilateral effects in oligopoly markets requires a holistic analysis of a number of factors none of which is decisive. While it ratifies the analytical stance of the Commission this does not necessarily indicate that the Commission will prevail as the appeal is heard again at the General Court. Furthermore, the judgment as well as the new techniques used by the Commission suggest that a review of the Horizontal Merger Guidelines is much needed More generally, the clash between the two courts reveals a fundamental difference between judges in the two courts about the role of EU competition law. EU Merger Regulation, Horizontal Merger Guidelines, unilateral effects, oligopoly, judicial review, telecommunications market, significant impediment of effective competition, standard of proof, competitive constraint, closeness of competition

On comparing the profitability of horizontal mergers under Cournot and Bertrand competitions

AbstractThis paper reconsiders the comparison of horizontal two‐firm mergers in differentiated oligopolies, originally explored with the assumption that the merged firm produces a single product. By relaxing this assumption, our analysis presents a contrast to previous findings that suggested that a two‐firm merger is more likely under the Cournot competition than under the Bertrand competition. We find that the opposite holds true if the merged firm chooses to produce one or both products post‐merger. Moreover, we demonstrate that, in most circumstances, and under either the Cournot or Bertrand competition, the merged firm has an incentive to produce both products post‐merger.

Horizontal mergers with Bertrand competition and convex costs

We discuss horizontal mergers in a homogeneous good industry where firms compete à la Bertrand with increasing marginal production costs. We show that profitable mergers can occur even for lower post-merger prices with respect to the pre-merger scenario, thus implying an increase in consumer surplus. The driving force of the result is the ability of the merged entity cutting production costs by sharing the output among its plants. This output rationalization effect can compensate for the revenue loss due to the merged entity producing less than the cumulated pre-merger production of the merging parties.

The Influence of Context Factors on Cooperation in IS Integration Projects for Horizontal Mergers

IS integration projects for horizontal mergers of large organizations have received scant attention from IS researchers. This study addresses this shortcoming by collecting and analyzing Technology and Social integration process data during the integration planning and implementation phases of a multi-year IS integration project for the horizontal merger of two large competitors. Using a power-dependence perspective to interpret our findings, we develop a mid-range propositional theory to explain how and why organization-level context factors influenced the cooperative behaviors of legacy employees participating in horizontal mergers and the success of IS integration processes.

平台横向合并下用户资源整合策略研究

平台横向合并下用户资源整合策略研究

Alarm probabilities of simple tests of merger control: An analytic derivation

<abstract> <p>For ten simple horizontal merger tests, I analytically derive the probability of blocking a merger. The assumptions are the symmetry of diversion ratios, price-cost margins, and efficiency gains, and the uniform joint distribution of these variables. The robustness analyses suggest that the limitations arising from the simplifying assumptions are only moderate. Based on these results, I provide an easy-to-use Excel calculator (without VBA macro), with which the probabilities associated with any product market and price increase threshold can be quickly calculated. Additionally, I propose a paired testing protocol for unknown demand systems by linking linear- and isoelastic-demand indicators through the threshold or the alarm probability.</p> </abstract>

Dynamic Lerner Condition and Horizontal Merger Assessment

Dynamic Lerner Condition and Horizontal Merger Assessment

Horizontal mergers and heterogeneous firm investments: evidence from the United States

I find on average firms respond to a horizontal merger by investing less in PP&E, labor, and R&D. There is notable heterogeneity among the non-merging rivals. The laggard rivals reduce investments in PP&E, labor, and R&D while the neck-and-neck rivals do the opposite. There is an insignificant change for the leader rivals. These results support Aghion et al. (2005) on the inverted-U relationship between competition and innovation. Also, I show evidence that financial constraints and innovativeness are two factors that drive rivals’ heterogeneous responses. This empirical study sheds light upon the pattern in which horizontal mergers shape industry evolvement.

A bargaining perspective on vertical integration

AbstractWe analyze vertical integration incentives in a bilaterally duopolistic industry with bargaining in the input market. Vertical integration incentives are a combination of horizontal integration incentives upstream and downstream and depend on the strength of substitutability and complementarity and the shape of the unit cost function. Under particular circumstances, vertical integration can convey more bargaining power to the merged entity than a horizontal merger to monopoly. In a bidding game for an exogenously determined target firm, a vertical merger can dominate a horizontal one, while pre‐emption does not occur.