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Compatible Mergers: Assets, ServiceAreas, and Market Power

Tetsuji Okazaki, Ken Onishi and Naoki Wakamori

No 19-007E, CIGS Working Paper Series from The Canon Institute for Global Studies

Abstract: This paper empirically examines the discrepancy between the incentive of firms to merge and the social value of mergers using detailed data on merger waves in the pre-WWII Japanese electricity industry when a competition authority did not yet exist. We find that firms could enjoy cost synergies when merging with firms with greater differences in production asset composition and/or reachable customers. Such mergers resulted in increases in capital utilization and total output. However, the sources of these cost synergies did not affect the merger decision of firms; instead, geographical proximity increased the likelihood of mergers. These results imply that the merger incentive may not align with social welfare and thus policy intervention to allow selective mergers for particular combinations of firms may help increase social welfare.

Pages: 35
Date: 2019-12
New Economics Papers: this item is included in nep-com and nep-ind
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