Estimating the Efficiency Effects of U.S. Telecommunications Mergers

24 Pages Posted: 6 Nov 2003

See all articles by Nakil Sung

Nakil Sung

University of Seoul - Department of Economics

Michael Gort

SUNY at Buffalo, College of Arts & Sciences, Department of Economics; National Bureau of Economic Research (NBER)

Date Written: 2003

Abstract

The paper attempts to examine the effects of two horizontal mergers between Baby Bells, the SBC-Pacific Telesis merger and the Bell Atlantic-Nynex merger, on the performance of the respective operating companies. The effects of the mergers are investigated by comparing the performance of the merging companies with a control group of non-merging companies and also, the performance of the merging companies before and after merger. The comparisons are made on total factor productivity (TFP) change, shifts in the total cost function and shareholder returns. In addition, the estimation of total cost functions provides estimates for economies of scale and scope, which are often cited as one of the main drivers for mergers. The empirical analysis is carried out with annual data for 38 operating companies over the period 1991-2000.

One of the main results is that while in terms of shareholder returns merged holding companies slightly outperformed non-merged companies for a short-period, this small gain soon disappeared. There was no significant increase in TFP for merged companies before and after merger and also, no systematic difference in TFP between merged and non-merged companies. The TFP regressions show that mergers have a negative or zero impact on TFP. Moreover, the cost analysis indicates that mergers might have even increased total costs. We control for demand fluctuations, the state of technology and two policy variables (regulation and competition) in both the productivity and the cost analysis. Finally, no economies of scale and scope are identified. Based on all these findings, the paper suggests that mergers between large Baby Bells did not produce net economies of scale and did not lead to substantial productivity growth.

JEL Classification: L11, L96

Suggested Citation

Sung, Nakil and Gort, Michael, Estimating the Efficiency Effects of U.S. Telecommunications Mergers (2003). Available at SSRN: https://ssrn.com/abstract=448660 or http://dx.doi.org/10.2139/ssrn.448660

Nakil Sung (Contact Author)

University of Seoul - Department of Economics ( email )

90 Cheonnong-dong, Dongdaemun-gu
Seoul, 130-743
Korea
82-2-2210-2180 (Phone)
82-2-2210-5232 (Fax)

Michael Gort

SUNY at Buffalo, College of Arts & Sciences, Department of Economics ( email )

Buffalo, NY 14260
United States
716-645-2121 x 42 (Phone)
716-645-2127 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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