Working Paper: CEPR ID: DP5977
Authors: Svenolof Fridolfsson; Johan Stennek
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: Antitrust; Coalition Formation; Event Studies; Mergers; Acquisitions
JEL Codes: G14; G34; L12; L41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| first rumors about mergers (G34) | interpretive challenges regarding competitive impacts (L49) |
| market sentiment and investor expectations (D84) | interpretive challenges regarding competitive impacts (L49) |
| merger announcements (G34) | decrease in competitors' share prices (G34) |