Rival Reactions – Do Value-Increasing Mergers Bolster Monopoly Rents for Strong Rivals?

47 Pages Posted: 5 Oct 2013 Last revised: 16 Feb 2014

See all articles by Eric de Bodt

Eric de Bodt

NHH-Caltech

Richard Roll

California Institute of Technology

Date Written: January 2014

Abstract

Mergers and acquisitions (M&As) are major events, potentially reshaping competition among industry rivals. Despite their seeming importance, the existing literature reports only a limited impact of M&As on the competitive environment. Our paper revisits this issue using a novel approach that characterizes the intensity and the nature of industry peers interactions. Using idiosyncratic return co-movements, we filter out unrelated firms and distinguish business partners from competitors. We then study rival reactions to horizontal M&A announcements conditionally on their status (business partners versus competitors). The results suggest that M&As dampen competition; this represents the first large scale empirical support for the market power hypothesis.

Keywords: Mergers and acquisitions, industry rivals, market power, competitive pressure

Suggested Citation

de Bodt, Eric and Roll, Richard W., Rival Reactions – Do Value-Increasing Mergers Bolster Monopoly Rents for Strong Rivals? (January 2014). Available at SSRN: https://ssrn.com/abstract=2336123 or http://dx.doi.org/10.2139/ssrn.2336123

Eric De Bodt (Contact Author)

NHH-Caltech ( email )

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Richard W. Roll

California Institute of Technology ( email )

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United States
626-395-3890 (Phone)
310-836-3532 (Fax)

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