The Role of Divestitures in Horizontal Mergers: Evidence from Product and Stock Markets
52 Pages Posted: 9 Jan 2018 Last revised: 26 Apr 2018
Date Written: April 17, 2018
In this first large-sample study of merger-related divestitures, we find that divestitures both reduce the market power and affect the competitive efficiency of merging firms. Postmerger output prices are lower when assets are divested, particularly when sold outside the industry. Consistent with this, stock price reactions of customer firms are more positive if merging firms divest assets outside the industry. In contrast, stock price reactions of the acquirer and rivals suggest that firms are more concerned with maintaining a competitive edge. We also find that the results vary based on industry competitiveness.
Keywords: merger and acquisition, divestiture, merger remedy, market power, competitive efficiency, antitrust
JEL Classification: G18, G14, G34
Suggested Citation: Suggested Citation