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Industry Concentration and Welfare - On the Use of Stock Market Evidence from Horizontal Mergers

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Author Info
Fridolfsson, Sven-Olof () (Research Institute of Industrial Economics)
Stennek, Johan () (Gothenburg University)

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Abstract

There is diverging empirical evidence on the competitive effects of horizontal mergers: consumer prices (and thus presumably competitors' profits) often rise while competitors' share prices fall. Our model of endogenous mergers provides a possible reconciliation. It is demonstrated that anticompetitive mergers may reduce competitors' share prices, if the merger announcement informs the market that the competitors' lost a race to buy the target. Also the use of "first rumor" as an event may create similar problems of interpretation. We also indicate how the event-study methodology may be adapted to identify competitive effects and thus, the welfare consequences for consumers.

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Publisher Info
Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 682.

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Length: 45 pages
Date of creation: 06 Dec 2006
Date of revision:
Handle: RePEc:hhs:iuiwop:0682

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Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden
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Related research
Keywords: Mergers & Acquisitions; Event Studies; Antitrust; In-play; Coalition Formation;

Other versions of this item:

Find related papers by JEL classification:
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Boyan Jovanovic & Peter L. Rousseau, 2001. "Mergers and Technological Change: 1885-1998," Working Papers 0116, Department of Economics, Vanderbilt University. [Downloadable!]
  2. Kamien, Morton I & Zang, Israel, 1993. "Monopolization by Sequential Acquisition," Journal of Law, Economics and Organization, Oxford University Press, vol. 9(2), pages 205-29, October.
  3. Salant, Stephen W & Switzer, Sheldon & Reynolds, Robert J, 1983. "Losses from Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 98(2), pages 185-99, May. [Downloadable!] (restricted)
  4. Eckbo, B. Espen, 1983. "Horizontal mergers, collusion, and stockholder wealth," Journal of Financial Economics, Elsevier, vol. 11(1-4), pages 241-273, April. [Downloadable!] (restricted)
  5. Fridolfsson S.O. & Stennek J., 1999. "Why mergers reduce profits, and raise share prices: A theory of preemptive mergers," Working Papers 1999018, University of Antwerp, Faculty of Applied Economics. [Downloadable!]
    Other versions:
  6. Horn, Henrik & Persson, Lars, 1999. "The Equilibrium Ownership of an International Oligopoly," CEPR Discussion Papers 2302, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  7. Mitchell, Mark L. & Mulherin, J. Harold, 1996. "The impact of industry shocks on takeover and restructuring activity," Journal of Financial Economics, Elsevier, vol. 41(2), pages 193-229, June. [Downloadable!] (restricted)
  8. Eckbo, B Espen & Maksimovic, Vojislav & Williams, Joseph, 1990. "Consistent Estimation of Cross-Sectional Models in Event Studies," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 3(3), pages 343-65. [Downloadable!] (restricted)
  9. Borenstein, Severin, 1990. "Airline Mergers, Airport Dominance, and Market Power," American Economic Review, American Economic Association, vol. 80(2), pages 400-404, May. [Downloadable!] (restricted)
  10. Singal, Vijay, 1996. "Airline Mergers and Competition: An Integration of Stock and Product Price Effects," Journal of Business, University of Chicago Press, vol. 69(2), pages 233-68, April. [Downloadable!] (restricted)
  11. Mueller, Dennis C, 1985. "Mergers and Market Share," The Review of Economics and Statistics, MIT Press, vol. 67(2), pages 259-67, May. [Downloadable!] (restricted)
  12. A. Craig MacKinlay, 1997. "Event Studies in Economics and Finance," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 13-39, March. [Downloadable!] (restricted)
  13. Perry, Martin K & Porter, Robert H, 1985. "Oligopoly and the Incentive for Horizontal Merger," American Economic Review, American Economic Association, vol. 75(1), pages 219-27, March. [Downloadable!] (restricted)
  14. Morton I. Kamien & Israel Zang, 1988. "The Limits of Monopolization Through Acquisition," Discussion Papers 802, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
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  15. Farrell, Joseph & Shapiro, Carl, 1990. "Horizontal Mergers: An Equilibrium Analysis," American Economic Review, American Economic Association, vol. 80(1), pages 107-26, March. [Downloadable!] (restricted)
    Other versions:
  16. Kim, E Han & Singal, Vijay, 1993. "Mergers and Market Power: Evidence from the Airline Industry," American Economic Review, American Economic Association, vol. 83(3), pages 549-69, June. [Downloadable!] (restricted)
  17. Heckman, James J & Smith, Jeffrey A, 1999. "The Pre-programme Earnings Dip and the Determinants of Participation in a Social Programme. Implications for Simple Programme Evaluation Strategies," Economic Journal, Royal Economic Society, vol. 109(457), pages 313-48, July. [Downloadable!] (restricted)
  18. Raymond Deneckere & Carl Davidson, 1985. "Incentives to Form Coalitions with Bertrand Competition," RAND Journal of Economics, The RAND Corporation, vol. 16(4), pages 473-486, Winter. [Downloadable!] (restricted)
  19. Horn, Henrik & Persson, Lars, 1996. "Endogenous Mergers in Concentrated Markets," CEPR Discussion Papers 1544, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  20. Eckbo, B Espen & Wier, Peggy, 1985. "Antimerger Policy under the Hart-Scott-Rodino Act: A Reexamination of the Market Power Hypothesis," Journal of Law & Economics, University of Chicago Press, vol. 28(1), pages 119-49, April.
  21. Prager, Robin A & Hannan, Timothy H, 1998. "Do Substantial Horizontal Mergers Generate Significant Price Effects? Evidence from the Banking Industry," Journal of Industrial Economics, Blackwell Publishing, vol. 46(4), pages 433-52, December. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Mats Bergman, 2008. "Quis Custodiet Ipsos Custodes? or Measuring and Evaluating the Effectiveness of Competition Enforcement," De Economist, Springer, vol. 156(4), pages 387-409, December. [Downloadable!] (restricted)
  2. Angelov, Nikolay, 2006. "Modelling firm mergers as a roommate problem," Working Paper Series 2006:10, Uppsala University, Department of Economics. [Downloadable!]
    Other versions:
  3. Xavier Boutin & Lionel Janin, 2008. "Are Prices Really Affected by Mergers?," Documents de Travail de la DESE - Working Papers of the DESE 2008-08, Institut National de la Statistique et des Etudes Economiques, D3E, revised Jul 2008. [Downloadable!]
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