Wednesday, November 21, 2018
Anticompetitive Effects of Horizontal Acquisitions: The Impact of Within-Industry Product Similarity
Maryam Fathollahi, University of Arizona - Department of Finance, Jarrad Harford, University of Washington, and Sandy Klasa, University of Arizona - Department of Finance Anticompetitive identify the Effects of Horizontal Acquisitions: The Impact of Within-Industry Product Similarity.
ABSTRACT: This study provides novel evidence on whether horizontal acquisitions reduce industry competition intensity. We examine the effect of within-industry product similarity, associated with intense industry competition, on a firm’s propensity to make a horizontal acquisition, and the impact of the acquisition on the firm, its rivals, and supplier and customer firms. Industry product similarity positively impacts a firm’s propensity of making a horizontal acquisition and acquisition announcement returns for the firm and its industry rivals. Consistent with these effects being driven by firms in industries with high product similarity trying to reduce competition intensity, these effects are more pronounced when other aspects of an industry further intensify competition. We also provide evidence that horizontal acquisitions conducted in industries with high product similarity reduce firm value in dependent customer and supplier industries. Overall, our findings imply that in industries with high product similarity horizontal acquisitions are used to raise incumbent firms’ market power.