Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 682: Industry Concentration and Welfare - On the Use of Stock Market Evidence from Horizontal Mergers

Sven-Olof Fridolfsson () and Johan Stennek ()
Additional contact information
Sven-Olof Fridolfsson: Research Institute of Industrial Economics, Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden
Johan Stennek: Gothenburg University, Postal: School of Business, Economics and Law,

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 rumor" as an event may create similar problems of interpretation. We also indicate how the event-study methodology may be adapted to identify competitive effects and thus, the welfare consequences for consumers.

Keywords: Mergers & Acquisitions; Event Studies; Antitrust; In-play; Coalition Formation

JEL-codes: G14; G34; L12; L41

45 pages, December 6, 2006

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