Friday, November 26, 2010
Posted by D. Daniel Sokol
Tomaso Duso, Humboldt University of Berlin - School of Business and Economics, Wissenschaftszentrum Berlin für Sozialforschung (WZB) - Competitiveness and Industrial Change and Joseph A. Clougherty, University of Illinois at Urbana-Champaign, Centre for Economic Policy Research (CEPR) describe Using Rival Effects to Identify Synergies and Improve Merger Typologies.
ABSTRACT: The strategic management literature has found it difficult to differentiate between collusive and efficiency-based synergies in horizontal merger activity. We propose a schematic to classify mergers that yields more information on merger types and merger effects, and that can, moreover, distinguish between mergers characterized largely by collusion-based synergies and mergers characterized largely by effi-ciency-based synergies. Crucial to the proposed measurement procedure is that it encompasses the impact of merger events not only on merging firms – as is custom – but also on non-merging competitor firms (the rivals). Employing the event-study methodology with stock-market data on samples of large horizontal mergers drawn from the US and UK (an Anglo-Saxon sub-sample) and from the European continent, we demonstrate how the proposed schematic can better clarify the nature of merger activity.