Debt and Mergers

35 Pages Posted: 29 Nov 2023 Last revised: 30 May 2024

See all articles by Eddie Watkins

Eddie Watkins

Government of the United States of America - Federal Trade Commission

Charles Taragin

Board of Governors of the Federal Reserve System

Benjamin Wallace

University of Kentucky

Date Written: November 8, 2023

Abstract

We consider the effects of debt on the price effects of horizontal mergers. Mergers
let firm spread repayment of debt over a diversified product portfolio, which in our
model can create downward pressure on price effects caused by the loss of rivalry
between the firms. We also show that mergers can provide an insurance effect when firms merge across markets. In simulations, we demonstrate that prices effects are
uniformly lower in the model with debt than the standard model. We also find
that mergers by firms that do not overlap can lead to price decreases but that the benefits of operating in diverse markets decrease as we simulate mergers between firms that overlap in a greater number of markets.

Suggested Citation

Watkins, Eddie and Taragin, Charles and Wallace, Benjamin, Debt and Mergers (November 8, 2023). Available at SSRN: https://ssrn.com/abstract=4627227 or http://dx.doi.org/10.2139/ssrn.4627227

Eddie Watkins (Contact Author)

Government of the United States of America - Federal Trade Commission ( email )

600 Pennsylvania Ave., NW
Washington, DC 20580
United States

Charles Taragin

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Benjamin Wallace

University of Kentucky ( email )

Lexington, KY 40506
United States

HOME PAGE: http://benwallaceecon.com/

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