Industry Concentration and Welfare - On the Use of Stock Market Evidence from Horizontal Mergers

Abstract:     
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 anticompetitive 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 identiy competitive effects and thus, the welfare consequences for consumers.

Number of Pages in PDF File: 47

Keywords: Mergers & acquisitions, event studies, antitrust, in-play, coalition formation

JEL Classification: G14, G34, L12, L41

working papers series