Mergers and the Market Concentration Doctrine: Evidence from the Capital Market
25 Pages Posted: 19 Jun 2010
Date Written: July 1, 1985
Abstract
The market concentration doctrine predicts that a horizontal merger is more likely to have collusive, anticompetitive effects the greater the merger-induced change in industry concentration. Since a collusive, anticompetitive merger generates an increase in the industry's quality-adjusted product price (or a decrease in factor prices), it also follows from the doctrine that the merger-induced expected benefits to the product market rivals of the merging firms should be an increasing function of the concentration change. The empirical results of this paper, which are based on the industry wealth effect of a large sample of horizontal mergers, including cases found in violation of antimonopoly laws, fail to support this prediction. This conclusion is robust with respect to assumptions concerning the probability that a proposed merger will be prevented by the law enforcement agencies, and it continues to hold after transforming the industry wealth effect into a hypothetical, constant expected change in the industry's product price. The results imply that the levels of concentration and market shares found in the Department of Justice's merger guidelines are unlikely to identify truly anticompetitive mergers.
Keywords: Mergers, antitrust, concentration, market power, industry rents
JEL Classification: D43, G34, G38, K21, L16, L41
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
New Evidence and Perspectives on Mergers
By Gregor Andrade, Mark L. Mitchell, ...
-
Do Managerial Objectives Drive Bad Acquisitions?
By Randall Morck, Andrei Shleifer, ...
-
Stock Market Driven Acquisitions
By Andrei Shleifer and Robert W. Vishny
-
Stock Market Driven Acquisitions
By Andrei Shleifer and Robert W. Vishny
-
Poison or Placebo? Evidence on the Deterrent and Wealth Effects of Modern Antitakeover Measures
By Robert Comment and G. William Schwert
-
Does Corporate Performance Improve after Mergers?
By Paul M. Healy, Krishna Palepu, ...
-
Managerial Performance, Tobin's Q, and the Gains from Successful Tender Offers
By Larry H.p. Lang, Ralph A. Walkling, ...