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

Sven-Olof Fridolfsson and Johan Stennek ()

No 5977, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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; in-play; mergers & acquisitions (search for similar items in EconPapers)
JEL-codes: G14 G34 L12 L41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com and nep-ind
Date: 2006-12
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Working Paper: Industry Concentration and Welfare - On the Use of Stock Market Evidence from Horizontal Mergers (2006)
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