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

17 Pages Posted: 27 Sep 2010

See all articles by Sven-Olof Fridolfsson

Sven-Olof Fridolfsson

Research Institute of Industrial Economics (IFN)

Johan Stennek

Research Institute of Industrial Economics (IFN); Centre for Economic Policy Research (CEPR)

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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 anti-competitive 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 identify competitive effects and thus the welfare consequences for consumers.

Suggested Citation

Fridolfsson, Sven-Olof and Stennek, Johan, Industry Concentration and Welfare: On the Use of Stock Market Evidence from Horizontal Mergers. Economica, Vol. 77, Issue 308, pp. 734-750, October 2010, Available at SSRN: https://ssrn.com/abstract=1681689 or http://dx.doi.org/10.1111/j.1468-0335.2009.00795.x

Sven-Olof Fridolfsson (Contact Author)

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Johan Stennek

Research Institute of Industrial Economics (IFN) ( email )

P.O. Box 5501
S-114 85 Stockholm
Sweden
+46 8 665 4536 (Phone)
+46 8 665 4599 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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