Industry Concentration and Welfare: On the Use of Stock Market Evidence from Horizontal Mergers
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 anti-competitive 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 rumour' 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. Copyright (c) The London School of Economics and Political Science 2009.
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Volume (Year): 77 (2010)
Issue (Month): 308 (October)
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