Collusion and Efficiency in Horizontal Mergers: Evidence from Geographic Overlap

52 Pages Posted: 1 Jun 2016 Last revised: 14 Mar 2017

Douglas J. Fairhurst

Washington State University

Ryan Williams

University of Arizona - Department of Finance

Date Written: January 1, 2017

Abstract

We explore the sources of gains in horizontal mergers by exploiting heterogeneity in the overlap between the merging firms’ geographic footprints. We calculate the geographic overlap between the bidder, target, and their rivals and customers to identify variation in the competitive impact of horizontal mergers. We document negative rival stock price reactions for expansion mergers when the bidder acquires a target with a different geographic footprint, indicating that these mergers are on average for efficiency reasons. Conversely, we detect significantly positive rival reactions and negative customer reactions when the bidder and target operate in similar geographic regions, consistent with anticompetitive effects in these deals. We also exploit staggered changes in state Attorneys General (AGs) to identify variation in local antitrust enforcement. We show that bidders avoid concentrating mergers in the presence of Democratic AGs, and Democratic AGs moderate the effects on local rivals and customers for concentrating mergers. Our evidence supports the argument that horizontal mergers that increase local industry concentration are more likely to be anti-competitive and we also document a significant role of state-level AGs in the M&A regulatory process.

Keywords: Horizontal mergers, mergers and acquisitions, antitrust, state regulation

Suggested Citation

Fairhurst, Douglas J. and Williams, Ryan, Collusion and Efficiency in Horizontal Mergers: Evidence from Geographic Overlap (January 1, 2017). Paris December 2016 Finance Meeting EUROFIDAI - AFFI. Available at SSRN: https://ssrn.com/abstract=2787264

Douglas J. Fairhurst

Washington State University ( email )

Todd Hall
P.O. Box 644746
Pullman, WA WA 85721-0108
United States

Ryan Williams (Contact Author)

University of Arizona - Department of Finance ( email )

McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States

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