Mergers and the Value of Antitrust Deterrence

Abstract

While the U.S. has pursued a vigorous antitrust policy towards horizontal mergers over the past four decades, mergers in Canada have until recently been permitted to take place in a virtually unrestricted antitrust environment. The absence of an antitrust overhang in Canada presents an interesting opportunity to test the conjecture that the rigid market share and concentration criteria of the U.S. policy effectively deters a significant number of potentially collusive mergers. The effective deterrence hypothesis implies that the probability of a horizontal merger being anticompetitive is higher in Canada than in the U.S.. However, parameters in cross-sectional regressions reject the market power hypothesis on samples of both U.S. and Canadian mergers. Judging from the Canadian evidence, there simply isn't much to deter.

Keywords: Mergers, antitrust, deterrence, market power, merger for monopoly, industry valuation effect, industry concentration, market concentration doctrine, collusive merger, efficiency

JEL Classification: G25, D21, D43, D61, G28, G34, G38, K21, L11, L13, L22, L44