Rival Reactions – Do Value-Increasing Mergers Bolster Monopoly Rents for Strong Rivals?
47 Pages Posted: 5 Oct 2013 Last revised: 16 Feb 2014
Date Written: January 2014
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: Suggested Citation