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Industry Concentration and Welfare - On the Use of Stock Market Evidence from Horizontal Mergers

47 Pages Posted: 7 Jan 2007  

Sven-Olof Fridolfsson

Research Institute of Industrial Economics (IFN)

Johan Stennek

Research Institute of Industrial Economics (IFN); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: December 2006

Abstract

There is diverging empirical evidence on the competitive effects of horizontal mergers: consumer prices (and thus presumably competitors' profits) often rise while competitors' share prices fall. Our model of endogenous mergers provides a possible reconciliation. It is demonstrated that anticompetitive mergers may reduce competitors' share prices, if the merger announcement informs the market that the competitors' lost a race to buy the target. Also the use of 'first rumour' as an event may create similar problems of interpretation. We also indicate how the event-study methodology may be adapted to identiy competitive effects and thus, the welfare consequences for consumers.

Keywords: Mergers & acquisitions, event studies, antitrust, in-play, coalition formation

JEL Classification: G14, G34, L12, L41

Suggested Citation

Fridolfsson, Sven-Olof and Stennek, Johan, Industry Concentration and Welfare - On the Use of Stock Market Evidence from Horizontal Mergers (December 2006). CEPR Discussion Paper No. 5977. Available at SSRN: https://ssrn.com/abstract=955338

Sven-Olof Fridolfsson

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Johan Stennek (Contact Author)

Research Institute of Industrial Economics (IFN) ( email )

P.O. Box 5501
S-114 85 Stockholm
Sweden
+46 8 665 4536 (Phone)
+46 8 665 4599 (Fax)

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

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