CAN ENTRY OR EXIT EVENT STUDIES INFORM HORIZONTAL MERGER ANALYSIS? EVIDENCE FROM GROCERY RETAILING

Daniel S. Hosken, Luke M. Olson and Loren K. Smith

Economic Inquiry, 2016, vol. 54, issue 1, 342-360

Abstract: type="main" xml:id="ecin12208-abs-0001"> This study estimates how prices change following the entry and exit of grocery retailers. We estimate the effects of entry (exit) by comparing affected markets to a set of unaffected markets using both a difference-in-difference estimator and a synthetic control estimator. We find that entry typically results in reduced prices. More surprisingly, we find that exit is frequently associated with falling prices. Our estimated effects of entry on grocery prices are similar in magnitude to estimates of merger price effects in the supermarket industry. This finding suggests that entry event studies may be a useful tool for horizontal merger analysis. (JEL L11, L4, L81)

Date: 2016
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