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An empirical assessment of the 2004 EU merger policy reform

  • Duso, Tomaso
  • Gugler, Klaus
  • Szücs, Florian

We propose a general framework to assess merger policy effectiveness based on standard oligopoly theory and stock market reactions. We focus on four different dimensions of effectiveness: 1) legal certainty, 2) decision errors, 3) reversion of anti-competitive rents, and 4) deterrence. We apply this framework to 368 merger cases scrutinized by the European Commission (EC) between 1990 and 2007. To evaluate the economic impact of the change in European merger legislation, we compare the results of the four tests before and after its introduction in 2004. Our results suggest that the 'more economic approach' resulted in improved ex-ante predictability of decisions and a reduction of the frequency of type I errors. Merger policy enforcement deters anti-competitive mergers without over-deterring pro-competitive transactions. Yet, the policy shift away from prohibitions, which are effective as a policy tool and as a deterrent mechanism, does not seem to be well-grounded.

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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 58.

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Date of creation: 2012
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Handle: RePEc:zbw:dicedp:58
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  1. 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.
  2. Stillman, Robert, 1983. "Examining antitrust policy towards horizontal mergers," Journal of Financial Economics, Elsevier, vol. 11(1-4), pages 225-240, April.
  3. Harford, Jarrad, 2005. "What drives merger waves?," Journal of Financial Economics, Elsevier, vol. 77(3), pages 529-560, September.
  4. Jo Seldeslachts & Joseph A. Clougherty & Pedro Pita Barros, 2009. "Settle for Now but Block for Tomorrow: The Deterrence Effects of Merger Policy Tools," Journal of Law and Economics, University of Chicago Press, vol. 52(3), pages 607-634, 08.
  5. A. Craig MacKinlay, 1997. "Event Studies in Economics and Finance," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 13-39, March.
  6. Ralph Siebert & Klaus Gugler, 2004. "Market Power versus Efficiency Effects of Mergers and Research Joint Ventures: Evidence from the Semiconductor Industry," NBER Working Papers 10323, National Bureau of Economic Research, Inc.
  7. Clougherty, Joseph & Duso, Tomaso, 2008. "The impact of horizontal mergers on rivals: Gains to being left outside a merger," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 239, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  8. 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.
  9. 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.
  10. Henrik Horn & James Levinsohn, 1997. "Merger Policies and Trade Liberalization," NBER Working Papers 6077, National Bureau of Economic Research, Inc.
  11. Bougette, Patrice & Turolla, Stéphane, 2006. "Merger Remedies at the European Commission: A Multinomial Logit Analysis," MPRA Paper 2461, University Library of Munich, Germany.
  12. 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.
  13. Eckbo, B Espen & Wier, Peggy, 1985. "Antimerger Policy under the Hart-Scott-Rodino Act: A Reexamination of the Market Power Hypothesis," Journal of Law and Economics, University of Chicago Press, vol. 28(1), pages 119-49, April.
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  16. Bergman, Mats A. & Jakobsson, Maria & Razo, Carlos, 2005. "An econometric analysis of the European Commission's merger decisions," International Journal of Industrial Organization, Elsevier, vol. 23(9-10), pages 717-737, December.
  17. Eckbo, B Espen, 1992. " Mergers and the Value of Antitrust Deterrence," Journal of Finance, American Finance Association, vol. 47(3), pages 1005-29, July.
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  21. repec:cup:cbooks:9780521816632 is not listed on IDEAS
  22. Gugler, Klaus & Mueller, Dennis C. & Weichselbaumer, Michael, 2012. "The determinants of merger waves: An international perspective," International Journal of Industrial Organization, Elsevier, vol. 30(1), pages 1-15.
  23. Boyan Jovanovic & Peter L. Rousseau, 2002. "The Q-Theory of Mergers," American Economic Review, American Economic Association, vol. 92(2), pages 198-204, May.
  24. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
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  26. Damien J. NEVEN & Lars-Hendrik RÖLLER, 2000. "Consumer Surplus vs. Welfare Standard in a Political Economy Model of Merger Control," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 00.24, Université de Lausanne, Faculté des HEC, DEEP.
  27. repec:cup:cbooks:9780521016919 is not listed on IDEAS
  28. Eckbo, B. Espen, 1983. "Horizontal mergers, collusion, and stockholder wealth," Journal of Financial Economics, Elsevier, vol. 11(1-4), pages 241-273, April.
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