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Mergers after cartels: How markets react to cartel breakdown

Author

Listed:
  • Stephen Davies

    (Centre for Competition Policy and School of Economics, University of East Anglia)

  • Peter L. Ormosi

    (Centre for Competition Policy and Norwich Business School, University of East Anglia)

  • Martin Graffenberger

    (Centre for Competition Policy, University of East Anglia)

Abstract

Using a novel application of recurrent event survival analysis for a sample of 84 EC industries, this paper establishes that cartel breakdown is typically followed by intensive merger activity - especially for cartels detected only after they had already broken down, and where concentration was lower. In a number of cases mergers led to the emergence of dominant leading firms while in most markets where mergers did not occur, post-cartel structure was already consistent with dominance. These results are consistent with the hypothesis that mergers are often designed to establish a new market structure conducive to tacit collusion. Surprisingly few mergers were intervened by the competition authority, apparently because many were individually small, but cumulatively had significant impact on concentration.

Suggested Citation

  • Stephen Davies & Peter L. Ormosi & Martin Graffenberger, 2014. "Mergers after cartels: How markets react to cartel breakdown," Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) 2014-01, Centre for Competition Policy, University of East Anglia, Norwich, UK..
    • Handle: RePEc:uea:ueaccp:2014_01
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    References listed on IDEAS

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    Cited by:

    1. Chowdhury, Subhasish M. & Crede, Carsten J., 2020. "Post-cartel tacit collusion: Determinants, consequences, and prevention," International Journal of Industrial Organization, Elsevier, vol. 70(C).
    2. Catarina Marvão & Giancarlo Spagnolo, 2018. "Cartels and leniency: Taking stock of what we learnt," Chapters, in: Luis C. Corchón & Marco A. Marini (ed.), Handbook of Game Theory and Industrial Organization, Volume II, chapter 4, pages 57-90, Edward Elgar Publishing.
    3. Stephen Davies & Peter Ormosi & Martin Graffenberger, 2015. "Mergers after cartels: How markets react to cartel breakdown," Journal of Law and Economics, University of Chicago Press, vol. 58(3).
    4. Franco Mariuzzo & Peter Ormosi & Richard Havell, 2016. "What can merger retrospectives tell us?An assessment of European mergers," Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) 2016-04, Centre for Competition Policy, University of East Anglia, Norwich, UK..
    5. Stefania Grezzana, 2016. "Lost In Time And Space: The Deterrence Effect Of Cartel Busts On The Retail Gasoline Market," Anais do XLIII Encontro Nacional de Economia [Proceedings of the 43rd Brazilian Economics Meeting] 158, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].

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    More about this item

    Keywords

    tacit and overt collusion; mergers; long-terme¤ects; recurrent events; survival analysis;
    All these keywords.

    JEL classification:

    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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