Merging Parties Research Articles

Merger of complements: Empirical evidence from the eyewear industry

We analyze the effects of a merger between sellers of perfect complements in an oligopolistic industry. Relying on a unique dataset listing every pair of glasses sold by almost 400 independent opticians in Germany, we study the effects of the 2018 merger between the global leading producer of ophthalmic lenses and the global leading producer of eyewear frames. We show that the retail prices of components produced by the merging parties decreased with the merger, relatively to the prices of components produced by competing firms. This is, according to the theory, due to a reduction in double-marginalization resulting from the internalization of externalities after the merger. We also find that the relative price decrease is asymmetric across component markets, in line with our theory.

EFFECTS OF MERGERS AND ACQUISITIONS ON COMPETITION IN INDIA

Competition law typically considers those merger cases where the main concern is that the merging parties would become so dominant in the market that they will increase the rates they charge the customers. This happens, mostly, because the merged entity has now gained a dominating position, as a consequence of the merger, to manipulate the market. Some mergers, on the other hand, minimize competition thus dropping rates that vendors demand. Thus, mergers and acquisitions have the capacity to hurt competition at both ends- from where the merged entity buys, and where it sells and this they can do in varied ways. Merger and Acquisitions can be anti-competitive where they include trends like limiting output or imposing price, fixing prices between competitors, or sale or supply terms on down the stream intermediaries. Merger and acquisition activity has been on a rise in India, and their impact on competition has led to many changes in the competition law. In this article we would be exploring how the merger and acquisition activity hurts competition and how the law in India has had to change to combat its damaging effects.

Internalizing Peer Firm Product Market Concerns: Supply Chain Relations and M&A Activity

ABSTRACTWe explore whether firms internalize the product market concerns of their economically linked peers by examining merger and acquisition decisions in the context of customer–supplier relations. Given the extensive transfer of capital, knowledge, and information between merging parties, we hypothesize that customers’ competition concerns discourage their suppliers from engaging in vertically conflicted transactions (i.e., acquisitions of their customers’ rivals or suppliers to those rivals). Consistent with our hypothesis, we find that suppliers are less likely to engage in such transactions when their customers are subject to higher product market competition. Moreover, the effect is more pronounced when suppliers and customers have greater relationship‐specific investments and when customers face heightened proprietary information concerns. Using plausibly exogenous variation in common ownership between customers and their rivals as a shock to customers’ competition concerns, we conclude that the link between customers’ competition concerns and supplier acquisitions is likely causal. Our findings suggest that firms alter their investment and strategic decisions in response to the product market competition concerns of their economically related peers.

Double Dutch: Illumina/GRAIL, Article 22 and the General Court

This article explores the jurisdictional issues underlying the decision of the European Commission to review Illumina’s acquisition of GRAIL. It marked the first the time the Commission investigated an acquisition where the target had no activities in the EU; nor indeed any nexus to any individual Member State. The decision to review a concentration where the target had no EU revenues was premised on a re-interpretation of Article 22(1) of the EU Merger Regulation, which allows Member States to request the Commission to examine a concentration. This interpretation is intended to expand the jurisdictional reach of the regulation to capture transactions involving companies with low turnover, but high competitive potential in the internal market, in cases where neither EU nor any Member State merger control thresholds are met. The General Court upheld the Commission’s position on Article 22 jurisdiction, but the judgment is on appeal to the Court of Justice. This article argues that the Court should overturn the earlier ruling on the basis that the GC was mistaken in its approach to Article 22, in view of its history and purpose. It also considers that flaws in the conduct of the procedure which deprived the merging parties of due process warranted an annulment of the decision to open an investigation. Moreover, this article calls out the incompatibility of the Commission’s application of Article 22 in Illumina/GRAIL with international law concepts of comity, fairness and sovereignty.

A Prospective Competitive Effects Analysis of the AT&T/Time Warner Merger

The vertical merger of AT&T and Time Warner combined one of the largest multiple video program distributors (MVPDs) in the United States with one of the largest providers of pay-TV programming. This study evaluates the potential competitive effects of the transaction by considering changes in the equity valuations of the respective upstream and downstream competitors to the merging parties when news of their proposed merger became public. Consistent with the government’s central theory of harm, it appears that financial markets expected the proposed transaction to result in Time Warner increasing its carriage fees to AT&T’s and DirecTV’s MVPD rivals. Market reactions to the announcement of AT&T’s commitment to enter into binding arbitration when negotiating future carriage fees for Tuner content provide further support for this inference. The results are difficult to rationalize in terms of the various efficiencies and synergies that AT&T claimed it would realize from the 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.

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.

Taking Innovation Seriously: A Dynamic Competition Model for Antitrust Law

Although innovation is often portrayed as a byproduct of competition, innovation and related dynamic aspects of competition are also, and perhaps more so, drivers of competition. The current antitrust framework, as illustrated by merger law and the agency guidelines that bear on that law, emphasizes static, demand-side conditions in defining markets and assessing likely anticompetitive effects. Only after the market has been defined and competitive effects assessed are innovation and dynamic, supply-side developments considered, and then in the context of rebutting anticompetitive findings already made on the basis of the static assessment. In addition, the burden of demonstrating and quantifying the supply-side developments is placed on the merging parties despite their relatively limited access to competitor capabilities, strategies, and plans. The following article suggests a new framework that places the burden of addressing dynamic considerations primarily on the enforcement agencies that must be met before the agencies can establish a presumption of illegality against a proposed transaction or a prime facie case against a competitive practice. It also suggests a more qualitative assessment of innovation and likely supply responses that is elaborated in the accompanying article by Professor David J. Teece.

Disentangling completed transactions in the UK: experiences and challenges

The UK has a voluntary, non-suspensory merger control regime, such that mergers, acquisitions and other transactions can be, and routinely are, completed before they are investigated by the CMA. However, the CMA can, and often does, investigate mergers, acquisitions and other transactions that have not been notified to it. It has powers to prevent further integration between the merging parties’ businesses, and to require existing integration to be unwound, pending the conclusion of its investigation. Where the CMA identifies competition concerns, whether at Phase 1 or Phase 2, the fact that a merger, acquisition or other transaction has been completed can give rise to difficulties in identifying, implementing and ensuring the effectiveness of a remedy. This article discusses the CMA’s powers to impose interim measures and its approach to remedies in completed transactions. It also discusses the lessons that the CMA has learned from implementing remedies in merger investigations into completed transactions.

Moderating Globalization: Is There a Role for Antitrust Law? A Comparison of the Relevance of Entry, Expansion and Imports in US and EU Merger Proceedings

This paper attempts to locate the issue of innovation and foreign entry, in particular new entrants from China, in recent US and EU merger decisions. In the first part, the paper examines to what extend US and EU authorities considered foreign entry in recent major merger decisions such as Bayer/Monsanto, Dow/DuPont and ChemChina/Syngenta. The outcome of this short analysis shows that the EU Commission has in recent years begun to accept the argument of foreign entry, in particular from China, as long as the market shares of the merging parties are not too high. The US has not explicitly discussed the question of foreign entry in the above-named decisions. However, in the case Whirlpool/Maytag the US authorities accepted, despite high market shares of the parties, the argument of foreign entry and approved the merger. With regards to innovation, entry into future product markets is not considered favourable to the merging parties by the EU Commission. ‘Innovation competition’ or early ‘pipeline products’ is rather used as an argument to demonstrate that the merging parties hold market power in product markets in the future. Based on the selected case law, the US authorities, by contrast, did recognize entry into future product markets as an argument in favour of the merging parties. In its second part, the paper looks at the pros and cons of forming ‘national champions’ and discusses competition law enforcement in light of the numerous and politically powerful Chinese state-owned enterprises (SOEs). Global competition/antitrust law and policy, foreign entry in merger decisions and China, innovation competition, entry criteria in US/EU mergers, climate change

Evaluating merger effects

AbstractThis paper proposes a new algorithm to identify the potential effect of mergers by comparing the outcomes of interest in areas of overlap for the merging parties vis‐à‐vis areas where no overlap exists within a difference‐in‐differences estimation framework. Utilizing our proposed algorithm enables researchers and policymakers to perform retrospective merger evaluation studies that look at the effects of mergers on both price and non‐price aspects. We demonstrate the applicability and value of our proposed methodology by examining the effects on price and product variety of four mergers of the late 1980s and the 1990s on the U.K. car market.

Mergers of Complements: On the Absence of Consumer Benefits

Mergers of complements are widely thought to decrease prices and thereby benefit consumers. Benefits materialise when the merging parties are monopolists but not when they face perfect competition. What about all cases between those competitive extremes? I model a vertically related industry where every supplier may face competition. I show that, for general demand functions, pre-merger margins can reveal whether a merger would decrease prices. Then I develop a simple, practicable merger test and identify when the standard prediction of merger benefits is inconsistent with observable facts. Instead of yielding benefits, profitable mergers of complements can cause unambiguous consumer harm.

Price-Fixing Allegations in the Canned Tuna Industry: A Look at the Data

In December 2014, Thai Union, the parent company of Chicken of the Sea canned tuna announced that it had reached an agreement to acquire Bumble Bee tuna from Lion Capital. In the course of standard merger review, the Department of Justice subpoenaed the merging parties as well as the parent company of StarKist to investigate possible collusion among the major producers of canned tuna. This led to several class action lawsuits and a criminal conviction for price fixing. This paper describes how these firms were alleged to have colluded and uses retail scanner data to document how prices and promotional activity changed while the cartel was in operation. Avenues for future research are discussed.

Assimilation Effects in Financial Markets

AbstractAn assimilation bias occurs when people’s evaluative judgment is positively influenced by a previously observed signal. We study this effect by examining investors’ appraisal of M&A deals announced 1 day after other firms in the same 1-digit SIC as the merging parties release earnings surprises. Consistent with assimilation effects, acquirers’ M&A announcement stock return initially correlates with the previous day’s earnings surprises. This effect reverses after 1 week. Assimilation generates other distortions as more positive surprises are related to increases in bid competition, takeover premiums, and withdrawn M&As. Evidence from IPOs corroborates the presence of assimilation effects in financial markets.

The provision of misleading and incorrect information by merging parties in EU merger investigations

This article focuses on the supply of information by companies during a European Commission merger investigation. This information enables the Commission to forecast the future effects of the merger. If companies provide incorrect or misleading information, the Commission may inaccurately assess the effects of the merger. This article analyses the Commission’s decision-making practice in the field of submission by companies of misleading or incorrect information, with the aim of determining the scope of the application of the provisions of the EU Merger Regulation that enable the imposition of penalties on companies that provide incorrect or misleading information during a merger investigation.

Integration and technology innovation in technology-sourcing M&As—A comparative study on overseas and domestic M&As of Chinese enterprises

ABSTRACT Technology-sourcing mergers and acquisitions (M&As) has become an important instrument for enterprises to acquire new knowledge and build technological ability. To achieve technology innovation improvement, the choice of integration strategy is vitally important. The purpose of this paper is to explore the relationship between integration and innovation in technology-sourcing M&As. To verify our hypotheses, we conduct a comparative empirical study based on the data of overseas and domestic M&As of Chinese enterprises from 2000 to 2019. We find that for overseas M&As, the influence of integration degree on technology innovation depends on the resource characteristics of the two merging parties. In cases of high resource similarity and low resource complementarity, the degree of integration positively affects technology innovation, while in cases of low resource similarity and high resource complementarity, the degree of integration negatively affects technology innovation. In comparison, for domestic M&As, the degree of integration positively affects technology innovation.

Merger selection, evidence provision, and the timing of merger control

AbstractMerger control impacts the type of merger projects that are submitted, as well as the information provided by the merging parties upon assessment. In this paper, we consider the outcomes in terms of selection of merger types and evidence provision of alternative timings for merger review, pre‐ or postconsummation of the merger. We show that the selection effect induced by the ex post merger review is welfare‐improving due to the deterrence of the most anticompetitive merger projects. In contrast, the welfare impact of evidence provision under ex post assessment is ambiguous. Balancing these two effects makes possible the welfare comparison between the ex ante and the ex post merger policy enforcement.

Protecting ‘competition, not competitors’: antitrust discourse and the AT&T-Time Warner merger

ABSTRACT A key discourse underpinning US antitrust law is that it protects competition, not competitors. However, what this means in practice both has changed over time and betrays the politics underlying antitrust enforcement. This article interrogates this discourse and its contradictions in the context of the AT&T-Time Warner merger lawsuit through a critical discourse analysis of legal documents related to the case. The case represents a conflict over incentivizing competition in digital advertising markets at the expense of competition, particularly smaller competitors, in video markets. The analysis reveals how the discourse obscures the strategic choices made by courts to protect incumbent companies: by approving the merger, the court circumscribed the video programming and distribution market for consolidation to strengthen the competitive position of the merging parties in the digital advertising market dominated by Facebook and Google. Thus, this discourse masks not just the deference to dominant merging companies, but also the role of courts in shaping market competition at their behest.

Economic Analysis Methodologies Applied in Merger Investigations in the EU and China: Comparative Case Studies

Abstract Understanding the application of economic analysis methods in merger reviews across various jurisdictions can benefit antitrust authorities when reviewing cases and aid the legal and economic teams that work with merging parties in better anticipating concerns and outcomes. The comparative studies on economic analysis methods applied in merger cases have mainly been focused on China/the US and the EU/US. The objective of this study is to explore how the EU and China apply economic analysis methods to merger control enforcement for the same concentrations, by means of a comparative case study. Two research questions are addressed: (i) What are the economic analysis methods employed by Chinese antitrust authorities when investigating merger cases and how are they used? (ii) What similarities and differences exist between the antitrust authorities in the EU and China in applying economic analysis methods during merger case reviews?

Bank Consolidation, Interest Rates, and Risk: A Post-Merger Analysis Based on Loan-Level Data from the Corporate Sector*

ABSTRACT In this paper, we analyze the bank merger between DnB and Gjensidige Bank in 2003, ranked by market share as number one and number three in the Norwegian bank market. Focusing on loans to firms, our difference-in-differences analysis shows no increase of concentration of new loans. The concentration in affected markets (markets where both merging parties were present) developed similar to unaffected markets. Moreover, the interest rate tended to be lower in the affected markets relative to unaffected markets, but this relationship is weak and not statistically significant. The merger also affected the riskiness of loans only marginally. These weak effects could be the result of efficiency gains in the form of lower costs being pass-through to customers, and the increased market power (and consequently higher interest rates) canceled each other out. The remedial measures imposed by the Norwegian Competition Authority on the two merging parties are also likely to explain some of the modest effects of the merger. The weak effects are largely coincident with international literature showing the effects of mergers and acquisitions in the banking sector to be modest.