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Evidence for the Effects of Mergers on Market Power and Efficiency

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Abstract

Study of the impact of mergers and acquisitions (M&As) on productivity and market power has been complicated by the difficulty of separating these two effects. We use newly-developed techniques to separately estimate productivity and markups across a wide range of industries using detailed plant-level data. Employing a difference-in-differences framework, we find that M&As are associated with increases in average markups, but find little evidence for effects on plant-level productivity. We also examine whether M&As increase efficiency through reallocation of production to more efficient plants or through reductions in administrative operations, but again find little evidence for these channels, on average. The results are robust to a range of approaches to address the endogeneity of firms' merger decisions.

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  • Bruce A. Blonigen & Justin R. Pierce, 2016. "Evidence for the Effects of Mergers on Market Power and Efficiency," Finance and Economics Discussion Series 2016-082, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgfe:2016-82
    DOI: 10.17016/FEDS.2016.082
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Mergers May Be Profitable, but Are They Good for the Economy?
      by Bruce A. Blonigen in HBR Blog Network on 2016-11-15 20:00:33

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    1. Tropeano, Jean-Philippe, 2020. "Ex ante or Ex post? When the timing of merger assessment is up to the merging firms," Information Economics and Policy, Elsevier, vol. 52(C).
    2. Johannes Boehm & Jan Sonntag, 2018. "Vertical Integration and Foreclosure: Evidence from Production Network Data," Sciences Po publications 2018-12, Sciences Po.
    3. Chandra S. Mishra, 2020. "Frequent acquirers and management compensation," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 41(5), pages 661-694, July.
    4. Weche John P. & Wambach Achim, 2021. "The Fall and Rise of Market Power in Europe," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 241(5-6), pages 555-575, November.
    5. Matias Covarrubias & Germán Gutiérrez & Thomas Philippon, 2019. "From Good to Bad Concentration? US Industries over the Past 30 Years," NBER Chapters, in: NBER Macroeconomics Annual 2019, volume 34, pages 1-46, National Bureau of Economic Research, Inc.
    6. Germán Gutiérrez & Thomas Philippon, 2017. "Investmentless Growth: An Empirical Investigation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 48(2 (Fall)), pages 89-190.
    7. Vanessa Alviarez & Keith Head & Thierry Mayer, 2020. "Global giants and local stars: How changes in brand ownership affect competition," Working Papers 2020-13, CEPII research center.
    8. Peter C. Carstensen, 2018. "Merger Guidelines and the Limits of Our Understanding," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 53(3), pages 477-506, November.
    9. Carl Shapiro, 2019. "Protecting Competition in the American Economy: Merger Control, Tech Titans, Labor Markets," Journal of Economic Perspectives, American Economic Association, vol. 33(3), pages 69-93, Summer.
    10. Bae, Kee-Hong & Bailey, Warren & Kang, Jisok, 2021. "Why is stock market concentration bad for the economy?," Journal of Financial Economics, Elsevier, vol. 140(2), pages 436-459.
    11. Johannes Boehm & Jan Sonntag, 2018. "Vertical Integration and Foreclosure: Evidence from Production Network Data," Working Papers hal-03393115, HAL.
    12. Stiebale, Joel & Szücs, Florian, 2019. "Mergers and market power: Evidence from rivals' responses in European markets," DICE Discussion Papers 323, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    13. Schmitt, Matt, 2017. "Do hospital mergers reduce costs?," Journal of Health Economics, Elsevier, vol. 52(C), pages 74-94.
    14. Simcha Barkai, 2020. "Declining Labor and Capital Shares," Journal of Finance, American Finance Association, vol. 75(5), pages 2421-2463, October.
    15. Bircan, Çağatay, 2019. "Ownership Structure and Productivity of Multinationals," Journal of International Economics, Elsevier, vol. 116(C), pages 125-143.
    16. Gutierrez, German & Philippon, Thomas, 2017. "Declining Competition and Investment in the U.S," CEPR Discussion Papers 12536, C.E.P.R. Discussion Papers.
    17. Jinhee Kwon & Cheong Kim & Kun Chang Lee, 2020. "Moderating Effect of the Continental Factor on the Business Strategy and M&A Performance in the Pharmaceutical Industry for Sustainable International Business," Sustainability, MDPI, vol. 12(12), pages 1-14, June.

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    More about this item

    Keywords

    Acquisitions; Efficiency; Market Power; Markups; Mergers; Productivity;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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