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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. 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.
  2. AMIR, Rabah & DIAMANTOUDI, Effrosyni & XUE, Licun, 2003. "Merger performance under uncertain efficiency gains," CORE Discussion Papers 2003038, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Clougherty, Joseph A. & Duso, Tomaso, 2008. "The Impact of Horizontal Mergers on Rivals: Gains to Being Left Outside a Merger," CEPR Discussion Papers 6867, C.E.P.R. Discussion Papers.
  4. Duso, Tomaso & Neven, Damien J & Röller, Lars-Hendrik, 2003. "The Political Economy of European Merger Control: Evidence Using Stock Market Data," CEPR Discussion Papers 3880, C.E.P.R. Discussion Papers.
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  6. 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.
  7. Sven-Olof Fridolfsson & Johan Stennek, 2010. "Industry Concentration and Welfare: On the Use of Stock Market Evidence from Horizontal Mergers," Economica, London School of Economics and Political Science, vol. 77(308), pages 734-750, October.
  8. Hall, Peter A. & Soskice, David (ed.), 2001. "Varieties of Capitalism: The Institutional Foundations of Comparative Advantage," OUP Catalogue, Oxford University Press, number 9780199247752.
  9. Farrell, Joseph & Shapiro, Carl, 1990. "Horizontal Mergers: An Equilibrium Analysis," American Economic Review, American Economic Association, vol. 80(1), pages 107-26, March.
  10. Eckbo, B. Espen, 1983. "Horizontal mergers, collusion, and stockholder wealth," Journal of Financial Economics, Elsevier, vol. 11(1-4), pages 241-273, April.
  11. Klaus Gugler & Dennis C. Mueller & B. Burcin Yurtoglu & Christine Zulehner, 2001. "The Effects of Mergers: An International Comparison," CIG Working Papers FS IV 01-21, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  12. Tomaso Duso & Klaus Gugler & Burcin Yurtoglu, 2006. "Is the Event Study Methodology Useful for Merger Analysis? A Comparison of Stock Market and Accounting Data," CIG Working Papers SP II 2006-19, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  13. Hans-Theo Normann, 2008. "Vertical Integration, Raising Rivals’ Costs and Upstream Collusion," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2008_30, Max Planck Institute for Research on Collective Goods.
  14. 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.
  15. Molnar, Jozsef, 2007. "Pre-emptive horizontal mergers: theory and evidence," Research Discussion Papers 17/2007, Bank of Finland.
  16. Sven-Olof Fridolfsson & Johan Stennek, 2005. "Why Mergers Reduce Profits And Raise Share Prices-A Theory Of Preemptive Mergers," Journal of the European Economic Association, MIT Press, vol. 3(5), pages 1083-1104, 09.
  17. Brito, Duarte, 2003. "Preemptive mergers under spatial competition," International Journal of Industrial Organization, Elsevier, vol. 21(10), pages 1601-1622, December.
  18. McGahan, Anita M. & Silverman, Brian S., 2006. "Profiting from technological innovation by others: The effect of competitor patenting on firm value," Research Policy, Elsevier, vol. 35(8), pages 1222-1242, October.
  19. Lucy White & Volker Nocke, 2004. "Do Vertical Mergers Facilitate Upstream Collusion?," 2004 Meeting Papers 45, Society for Economic Dynamics.
  20. 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.
  21. Gugler, Klaus & Mueller, Dennis C & Yurtoglu, B Burcin, 2004. "Corporate Governance and the Returns on Investment," Journal of Law and Economics, University of Chicago Press, vol. 47(2), pages 589-633, October.
  22. 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.
  23. 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.
  24. Andrea Fosfuri & Marco S. Giarratana, 2009. "Masters of War: Rivals' Product Innovation and New Advertising in Mature Product Markets," Management Science, INFORMS, vol. 55(2), pages 181-191, February.
  25. Julian Birkinshaw, 2000. "Managing the Post-acquisition Integration Process: How the Human Iintegration and Task Integration Processes Interact to Foster Value Creation," Journal of Management Studies, Wiley Blackwell, vol. 37, pages 395-425, 05.
  26. Gregor Andrade & Mark Mitchell & Erik Stafford, 2001. "New Evidence and Perspectives on Mergers," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 103-120, Spring.
  27. Ingemar Dierickx & Karel Cool, 1989. "Asset Stock Accumulation and Sustainability of Competitive Advantage," Management Science, INFORMS, vol. 35(12), pages 1504-1511, December.
  28. 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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