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Using rival effects to identify synergies and improve merger typologies

  • Clougherty, Joseph A.
  • Duso, Tomaso

The strategy literature has found it difficult to differentiate between collusive and efficiencybased synergies in horizontal merger activity. We propose a theoretically-backed methodological approach to classify mergers that yields more information on merger types and merger effects, and that can, moreover, distinguish between mergers characterized largely by collusion-based synergies and mergers characterized largely by efficiency-based synergies. Crucial to the proposed measurement approach is that it encompasses the impact of merger events not only on merging firms (custom in the literature), but also on non-merging rival firms (novel in the literature). Employing the event-study procedure with stock-market data on samples of large horizontal mergers drawn from the US and UK (an Anglo-American sub-sample) and from the European continent, we demonstrate how the proposed schematic can better clarify the nature of merger activity.

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Paper provided by Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE) in its series DICE Discussion Papers with number 25.

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Date of creation: 2011
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Handle: RePEc:zbw:dicedp:25
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  1. Licun Xue & Rabah Amir & Effrosyni Diamantoudi, 2004. "Merger Performance under Uncertain Efficiency Gains," Working Papers 2004.79, Fondazione Eni Enrico Mattei.
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  7. Volker Nocke & Lucy White, 2003. "Do Vertical Mergers Facilitate Upstream Collusion?," PIER Working Paper Archive 03-033, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
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  16. Duso, Tomaso & Gugler, Klaus & Yurtoglu, Burcin, 2010. "Is the event study methodology useful for merger analysis? A comparison of stock market and accounting data," International Review of Law and Economics, Elsevier, vol. 30(2), pages 186-192, June.
  17. Song, Moon H. & Walkling, Ralph A., 2000. "Abnormal returns to rivals of acquisition targets: A test of the 'acquisition probability hypothesis'," Journal of Financial Economics, Elsevier, vol. 55(2), pages 143-171, February.
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  20. Stephen W. Salant & Sheldon Switzer & Robert J. Reynolds, 1983. "Losses From Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, Oxford University Press, vol. 98(2), pages 185-199.
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  23. FRIDOLFSSON, Sven-Olof & STENNEK, Johan, 1999. "Why mergers reduce profits, and raise share prices: A theory of preemptive mergers," Working Papers 1999018, University of Antwerp, Faculty of Applied Economics.
  24. Ellert, James C, 1976. "Mergers, Antitrust Law Enforcement and Stockholder Returns," Journal of Finance, American Finance Association, vol. 31(2), pages 715-32, May.
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  26. 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.
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  28. Ajeyo Banerjee & E. Woodrow Eckard, 1998. "Are Mega-Mergers Anticompetitive? Evidence from the First Great Merger Wave," RAND Journal of Economics, The RAND Corporation, vol. 29(4), pages 803-827, Winter.
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