Ready-to-Mix: Horizontal Mergers, Prices, and Productivity

US Census Bureau Center for Economic Studies Paper No. CES-WP- 17-38

49 Pages Posted: 1 Aug 2015 Last revised: 26 Apr 2017

Date Written: April 21, 2017

Abstract

I estimate the price and productivity effects of horizontal mergers in the ready-mix concrete industry using plant and firm-level data from the US Census Bureau. Horizontal mergers involving plants in close proximity are associated with price increases and decreases in output, but also raise productivity at acquired plants. While there is a significant negative relationship between productivity and prices, the rate at which productivity reduces price is modest and the effects of increased market power are not offset. I then present several additional new results of policy interest. For example, mergers are only observed leading to price increases after the relaxation of antitrust standards in the mid-1980s; price increases following mergers are persistent but tend to become smaller over time; and, there is evidence that firms target plants charging below average prices for acquisition. Finally, I use a simple multinomial logit demand model to assess the effects of merger activity on total welfare. At acquired plants, the consumer and producer surplus effects approximately cancel out, but effects at acquiring plants and non-merging plants, where prices also rise, cause a substantial decrease in consumer surplus.

Keywords: Horizontal Mergers, Market Power, Antitrust, Productivity

JEL Classification: L00, L12, L22, L41

Suggested Citation

Kulick, Robert B., Ready-to-Mix: Horizontal Mergers, Prices, and Productivity (April 21, 2017). US Census Bureau Center for Economic Studies Paper No. CES-WP- 17-38. Available at SSRN: https://ssrn.com/abstract=2637961 or http://dx.doi.org/10.2139/ssrn.2637961

Robert B. Kulick (Contact Author)

NERA Economic Consulting ( email )

1255 23rd Street NW
Suite 600
Washington, DC 20009
United States

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