Tuesday, December 15, 2009
Posted by D. Daniel Sokol
Mikko Packalen, University of Waterloo - Department of Economics and Anindya Sen, University of Waterloo - Department of Economics examine Static and Dynamic Merger Effects: Evidence from the Divestiture of Texaco's Canadian Assets.
ABSTRACT: Dynamic merger effects from potential efficiencies created by mergers are a core concept in standard merger theory and merger policy. While these efficiencies will likely arrive mostly in the long run, empirical merger analyses have generally focused on short-run effects. We estimate merger effects from the divestiture of Texaco's Canadian assets. Our main emphasis is on estimating short and long-run merger impacts on market shares. Standard merger theory predicts that merger efficiencies will be reflected in market shares: the presence of merger efficiencies determines whether the merged firm regains market share in the long run. Results from two difference-in-difference specifications show that the short-run merger impact on the merging firms' combined market share was small but in the long run the merged firm experienced a large decline in its market share. These results demonstrate both that dynamic merger effects can be important, and that dynamic merger effects do not necessarily arise from efficiencies created by a merger.