MERGER PERFORMANCE AND EFFICIENCIES IN HORIZONTAL MERGER POLICY IN THE UNITED STATES AND THE EUROPEAN UNION
Abstract
In current horizontal merger policy in the US and the EU an explicit efficiency defense is allowed. On both sides of the Atlantic mergers are unconditionally approved if internal efficiencies are sufficient to reverse the mergers’ potential to harm consumers in the relevant market. Current merger policy is implicitly based on the assumption that rational managers will only propose privately profitable mergers. In this paper I will show that the empirical evidence on merger performance suggests that this assumption can’t be sustained. Managers do propose uneconomic mergers, motivated by non-wealth maximizing behavior. To tackle this problem I argue that efficiencies should not only be used as an efficiency defense, but efficiencies should work both ways. To avoid type I and type II errors the competition authorities in the US and the EU should undertake a sequential efficiency test in their assessment of specific mergers.References
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[36] Hermalin, Benjamin E. 1992. The Effects of Competition on Executive Behavior. Rand Journal of Economics, 23(3), 350-65.
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[38] Hitt, M.A., Hoskisson R.E., Ireland R.D. and Harrison J.S. 1991. Effects of Acquisitions on RandD Inputs and Outputs. Academy of Management Journal, 34 (3), 693-706.
[39] Horn, H., Lang, H. and Lundgren, S. 1995. Managerial Effort Incentives, X-Inefficiency and International Trade. European Economic Review, 39(1), 117-38.
[40] Ikeda, Katsuhiko and Doi, Noriyuki. 1983. The Performance of Merging Firms in Japanese Manufacturing Industry: 1964-75. Journal of Industrial Economics, 31, 257-266.
[41] Ilzkovitz, F. and Meiklejohn, R. 2003. European Merger Control: Do We Need an Efficiency Defence? Journal of Industry, Competition and Trade, 3:1/2, 57-85.
[42] Jensen, Michael C., Ruback and Richard S. 1983. The Market for Corporate Control: The Scientific Evidence. Journal of Financial Economics, 11(1-4), 5-50.
[43] Kim, E. Han, and Singal, Vijay. 1993. Mergers and Market Power: Evidence from the Airline Industry. American Economic Review 83(3), 549-569.
[44] Kinne, Konstanze. 1998. The “Efficiency Defence” in the U.S. American Merger Policy (Diskussionspapier 67). Hamburg: HWWA – Institut für Wirtschaftsforschung.
[45] Leibenstein, H. 1966. Allocative Efficiency vs. X-Efficiency. American Economic Review, 56 (3), 392–415.
[46] Manne, H.G. 1965. Mergers and the Market for Corporate Control. The Journal of Political Economy, 73 (2), 110-120.
[47] Marris, R. 196). The Economic Theory of Managerial Capitalism. Illinois: Free Press of Glencoe.
[48] Meeks G. 1977. Disappointing Marriage: A Study of the Gains from Merger. Cambridge: Cambridge University Press.
[49] Megginson, W.L., Morgan A. and Nail L. 2004. The determinants of positive long-term performance in strategic mergers: Corporate focus and cash. Journal of Banking and Finance, 28 (3), 523-552.
[50] Motta, M. 2004. Competition Policy: theory and practice. Cambridge: Cambridge University Press.
[51] Mueller, D.C. 1985. Mergers and Market Share. Review of Economics and Statistics, 67(2), 259-267.
[52] Mueller, D.C. 1980. The Determinants and Effects of Mergers: An International Comparison. Cambridge, MA: Oelgeschlager, Gunn and Hain.
[53] Muris, T.J. 1980. The Efficiency Defense Under Section 7 of the Clayton Act. Case Western Law Review, 30, 381-432.
[54] Overbury, H. Colin. 1994. Politics or Policy? The Demystification of EC Merger Control. In: B. Hawk (Ed.), International Antitrust Law and Policy 1994: Annual Proceedings of the Fordham Corporate Law Institute. New York: Fordham Corporate Law Institute.
[55] Padilla, A.J. 2005. Efficiencies in Horizontal Mergers: Williamson Revisited. In: W.D. Collins (Ed.), Issues in Competition Law and Policy. Chicago: American Bar Association Press.
[56] Ravenscraft D.J. and Scherer, F. Michael. 1987. Mergers, Sell-offs, and Economic Efficiency. Washington, D.C.: Brookings Institution.
[57] Ravenscraft D.J. and Scherer, F. Michael. 1988. Mergers and Managerial Performance. In: J.C. Coffee (Ed.), Knights, Raiders and Targets. New York: Oxford University Press.
[58] Ravenscraft, David J. and Scherer, F.M. 1989. The profitability of mergers. International Journal of Industrial Organization, 7, 101–116.
[59] Renckens, A. 2007. Welfare Standards, Substantive Tests, and Efficiency Considerations in Merger Policy: Defining the Efficiency Defense. Journal of Competition Law and Economics, 3(2), 149-179.
[60] Roll, R. 1986. The Hubris Hypothesis of Corporate Takeovers. Journal of Business, 59 (2), 197-216.
[61] Röller, L-H., Stennek J. and Verboven F. 2000. Efficiency Gains From Mergers (Working Paper No. 543). Stockholm: The Research Institute of Industrial Economics, available at http://swopec.hhs.se/iuiwop/papers/iuiwop0543.pdf.
[62] Rubinfeld, D.L. 1985. Econometrics in the courtroom. Columbia Law Review, 85(5), 1048–1119.
[63] Sauter, W. 1997. Competition Law and Industrial Policy in the EU. Oxford: Clarendon Press.
[64] Schenk, Hans. 2006. Mergers and Concentration Policy. In: Bianchi, P., Labory, S. (Ed.), International Handbook of Industrial Policy. Cheltenham: Edward Elgar.
[65] Shiller, R.J. 1984. Stock Prices and Social Dynamics. Brookings Papers on Economic Activity, 2, 457-510.
[66] Stulz, Rene M., Ralph A. Walking, and Moon H. Song. 1990. The Distribution of Target Ownership and the Division of Gains in Successful Takeovers. The Journal of Finance, XLV, 817–833.
[67] Sven-Olof Fridolfsson. 2007. A consumers’ surplus defence in merger control (Working Paper No. 686). Stockholm: The Research Institute of Industrial Economics, available at http://www.ifn.se/Wfiles/wp/wp686.pdf.
[68] Tichy, Günther. 2001. What Do We Know about Success and Failure of Mergers? Journal of Industry, Competition and Trade, 1(4), 347-394.
[69] Weinberg, Matthew. 2008. The Price Effects of Horizontal Mergers. Journal of Competition Law and Economics, 4(2), p. 433-447.
[70] Werden, G.J. 1996. A robust test for consumer welfare enhancing mergers among sellers of differentiated products. Journal of Industrial Economics, 44(4), 409–413.
[71] West, Jeremy K. 2007. Dynamic Efficiencies in Merger Analysis (OECD Working Paper No. 77). Paris: Organisation for Economic Co-operation and Development, available at SSRN: http://ssrn.com/abstract=1144029.
[72] Williamson, Oliver E. 1968. Economies as an Antitrust Defence: The Welfare Trade-offs. American Economic Review, 58, 18-36.
[2] Aghion, Phillipe; Bloom, Nocholas; Blundell, Richard; Griffith, Rachel and Howitt, Peter. 2005. Competition and Innovation: An Inverted U Relationship. The Quarterly Journal of Economics, 2, 701-728.
[3] Akhavein J.D., Berger A.N. and Humphrey D.B. 1997. The Effects of Megamergers on Efficiency and Prices: Evidence from a Bank Profit Function. Review of Industrial Organization, 12, 95-135.
[4] Baldwin, J. and Gorecki, P. 1990. Mergers Placed in the Context of Firm Turnover. In: Bureau of the Census, 1990 Annual Research Conference, Proceedings. Washington D.C.: US Department of Commerce.
[5] Barton, David M., and Sherman, Roger. 1984. The Price and Profit Effects of Horizontal Merger: A Case Study. Journal of Industrial Economics, 33(2), 165-77.
[6] Berger, Allen N. and Humphrey, David B. 1992 Megamergers in Banking and the Use of Cost Efficiency as an Antitrust Defense. Antitrust Bulletin, 37(3), 541-600.
[7] Berle, A.A. and Means, G.C. 1932. The Modern Corporation and Private Property (rev. ed. 1968). New York: Harcourt, Brace, Jovanovich.
[8] Borenstein, Severin. 1990. Airline Mergers, Airport Dominance, and Market Power. American Economic Review, 80(2), 400-404.
[9] Bradley, Michael; Desai, Anand, and Kim, E. Han. 1988. Synergistic gains from corporate acquisitions and their division between the stockholders of target and acquiring firms. Journal of Financial Economics, 21(1), 3-40.
[10] Brouwer, M. 2008. Horizontal mergers and efficiencies; theory and anti trust practice. European Journal of Law and Economics, 26(1), 11-26.
[11] Budzinski, Oliver and Ruhmer, Isabel. 2009. Merger Simulation in Competition Policy: A Survey (Working Papers 82/09). University of Southern Denmark: Department of Environmental and Business Economics, available at SSRN: http://ssrn.com/abstract=1138682.
[12] Camesasca, P.D.N. 1999. The Explicit Efficiency Defence in Merger Control: Does it Make the Difference? European Competition Law Review, 20(1), 14-28.
[13] Council Regulation (EC) No. 139/2004 of 20 January 2004 on the control of concentrations between undertakings (the EC Merger Regulation), OJ L 24 (2004).
[14] Council Regulation (EEC) No. 4064/89 of 21 December 1989 on the control of concentrations between undertakings, OJ L 395 (1989).
[15] Cowling, Keith; Stoneman, Paul; Cubbin, J.; Cable, John; Hall, Graham; Domberger S. and Dutton P. 1980. Mergers and economic performance. Cambridge: Cambridge University Press.
[16] De la Mano, M. 2002. For the customer’s sake: the competitive effects of efficiencies in European merger control (EC DG Enterprise Paper No 11). Luxembourg: Office for Official Publications of the European Communities.
[17] Dickerson A.P., Gibson H.D. and Tsakalotos E. 1997. The Impact of Acquisitions on Company Performance: Evidence From a Large Panel of UK Firms. Oxford Economic Papers, 49, 344-361.
[18] Duso, T., Gugler, K. and Yurtoglu, B. 2006. Is the Event Study Methodology Useful for Merger Analysis? A Comparison of Stock Market and Accounting Data. WZB Markets and Politics, Working Paper No. SP II 19, available at SSRN: http://ssrn.com/abstract=931388.
[19] Eckbo, B. Espen, 1983. Horizontal Mergers, Collusion, and Stockholder Wealth. Journal of Financial Economics (JFE), 11, 241-273.
[20] Economist, The. 2000. Good Heavens, good governance, European Business Survey. The Economist, 8168(355).
[21] Economist, The. 2008. Three amigos, only one conquistador. The Economist, 8589(388).
[22] European Commission. 1996. Contribution to Efficiency Claims in Mergers and Other Horizontal Agreements. O.E.C.D./GD(96)65.
[23] Farrell, J. and Katz M.L. 2006. The Economics of Welfare Standards in Antitrust. Competition Policy International, 2(2), 3-28.
[24] Fortis. 2008. Fortis reports strong progress in the integration of ABN AMRO. Retrieved June 18, 2009, from http://www.holding.fortis.com/press/info/PRS_UK_220508_ALL.pdf.
[25] Fox, E.M. 1997. US and EU competition law: a comparison. In J.D. Richardson (Ed.), Global Competition Policy (pp. 339-354). Washington, D.C.: Peterson Institute for International Economics.
[26] Frensch, F. 2007. The Social Side of Mergers and Acquisitions: Cooperation relationships after mergers and acquisitions. Berlin: DUV.
[27] Fridolfsson, S. and Stennek, J. 2005. Why Mergers Reduce Profits and Raise Share Prices-A Theory of Preemptive Mergers. Journal of European Economic Association, 3, 1083-1104.
[28] FTC, Federal Trade Commission. 1997. 1992 Horizontal Merger Guidelines [With April 8, 1997, Revisions to Section 4 on Efficiencies], Washington: Federal Trade Commission (ftc.gov/bc/docs/horizmer.htm).
[29] Gifford, D.J. and Kudrle, R.T. 2005. Rhetoric and reality in the merger standard of the United States, Canada and the European Union. Antitrust Law Journal, 72(2), 423-469.
[30] Goldberg, L.G. 1973. The effect of conglomerate mergers on competition. Journal of Law and Economics, 16, 137–158.
[31] Gugler, Klaus and Mueller, Dennis C. and Yurtoglu, B. Burcin and Zulehner, Christine. 2003. The effects of mergers: an international comparison. International Journal of Industrial Organization, 21(5), 625-653.
[32] Guidelines on the Assessment of Horizontal Mergers. 2004. O.J. (C 31) 5, available at http://europa.eu.int/eur-lex/pri/en/oj/dat/2004/c_031/c_03120040205en00050018.pdf.
[33] Hall, Bronwyn H. 1991. The Impact of Corporate Restructuring on Industrial Research and Development. NBER Working Paper No. W3216, available at SSRN: http://ssrn.com/abstract=226712.
[34] Hayward M.L.A. and Hambrick D.C. 1997. Explaining the Premiums Paid for Large Acquisitions: Evidence of CEO Hubris. Administrative Science Quarterly, 42, 103-127.
[35] Healy P.M., Palepu K.G. and Ruback R.S. 1992. Does corporate performance improve after mergers? Journal of Financial Economics, 31, 135-175.
[36] Hermalin, Benjamin E. 1992. The Effects of Competition on Executive Behavior. Rand Journal of Economics, 23(3), 350-65.
[37] Heyer, K. 2006. Welfare Standards and Merger Analysis: Why Not the Best? Competition Policy International, 2(2), 1-24.
[38] Hitt, M.A., Hoskisson R.E., Ireland R.D. and Harrison J.S. 1991. Effects of Acquisitions on RandD Inputs and Outputs. Academy of Management Journal, 34 (3), 693-706.
[39] Horn, H., Lang, H. and Lundgren, S. 1995. Managerial Effort Incentives, X-Inefficiency and International Trade. European Economic Review, 39(1), 117-38.
[40] Ikeda, Katsuhiko and Doi, Noriyuki. 1983. The Performance of Merging Firms in Japanese Manufacturing Industry: 1964-75. Journal of Industrial Economics, 31, 257-266.
[41] Ilzkovitz, F. and Meiklejohn, R. 2003. European Merger Control: Do We Need an Efficiency Defence? Journal of Industry, Competition and Trade, 3:1/2, 57-85.
[42] Jensen, Michael C., Ruback and Richard S. 1983. The Market for Corporate Control: The Scientific Evidence. Journal of Financial Economics, 11(1-4), 5-50.
[43] Kim, E. Han, and Singal, Vijay. 1993. Mergers and Market Power: Evidence from the Airline Industry. American Economic Review 83(3), 549-569.
[44] Kinne, Konstanze. 1998. The “Efficiency Defence” in the U.S. American Merger Policy (Diskussionspapier 67). Hamburg: HWWA – Institut für Wirtschaftsforschung.
[45] Leibenstein, H. 1966. Allocative Efficiency vs. X-Efficiency. American Economic Review, 56 (3), 392–415.
[46] Manne, H.G. 1965. Mergers and the Market for Corporate Control. The Journal of Political Economy, 73 (2), 110-120.
[47] Marris, R. 196). The Economic Theory of Managerial Capitalism. Illinois: Free Press of Glencoe.
[48] Meeks G. 1977. Disappointing Marriage: A Study of the Gains from Merger. Cambridge: Cambridge University Press.
[49] Megginson, W.L., Morgan A. and Nail L. 2004. The determinants of positive long-term performance in strategic mergers: Corporate focus and cash. Journal of Banking and Finance, 28 (3), 523-552.
[50] Motta, M. 2004. Competition Policy: theory and practice. Cambridge: Cambridge University Press.
[51] Mueller, D.C. 1985. Mergers and Market Share. Review of Economics and Statistics, 67(2), 259-267.
[52] Mueller, D.C. 1980. The Determinants and Effects of Mergers: An International Comparison. Cambridge, MA: Oelgeschlager, Gunn and Hain.
[53] Muris, T.J. 1980. The Efficiency Defense Under Section 7 of the Clayton Act. Case Western Law Review, 30, 381-432.
[54] Overbury, H. Colin. 1994. Politics or Policy? The Demystification of EC Merger Control. In: B. Hawk (Ed.), International Antitrust Law and Policy 1994: Annual Proceedings of the Fordham Corporate Law Institute. New York: Fordham Corporate Law Institute.
[55] Padilla, A.J. 2005. Efficiencies in Horizontal Mergers: Williamson Revisited. In: W.D. Collins (Ed.), Issues in Competition Law and Policy. Chicago: American Bar Association Press.
[56] Ravenscraft D.J. and Scherer, F. Michael. 1987. Mergers, Sell-offs, and Economic Efficiency. Washington, D.C.: Brookings Institution.
[57] Ravenscraft D.J. and Scherer, F. Michael. 1988. Mergers and Managerial Performance. In: J.C. Coffee (Ed.), Knights, Raiders and Targets. New York: Oxford University Press.
[58] Ravenscraft, David J. and Scherer, F.M. 1989. The profitability of mergers. International Journal of Industrial Organization, 7, 101–116.
[59] Renckens, A. 2007. Welfare Standards, Substantive Tests, and Efficiency Considerations in Merger Policy: Defining the Efficiency Defense. Journal of Competition Law and Economics, 3(2), 149-179.
[60] Roll, R. 1986. The Hubris Hypothesis of Corporate Takeovers. Journal of Business, 59 (2), 197-216.
[61] Röller, L-H., Stennek J. and Verboven F. 2000. Efficiency Gains From Mergers (Working Paper No. 543). Stockholm: The Research Institute of Industrial Economics, available at http://swopec.hhs.se/iuiwop/papers/iuiwop0543.pdf.
[62] Rubinfeld, D.L. 1985. Econometrics in the courtroom. Columbia Law Review, 85(5), 1048–1119.
[63] Sauter, W. 1997. Competition Law and Industrial Policy in the EU. Oxford: Clarendon Press.
[64] Schenk, Hans. 2006. Mergers and Concentration Policy. In: Bianchi, P., Labory, S. (Ed.), International Handbook of Industrial Policy. Cheltenham: Edward Elgar.
[65] Shiller, R.J. 1984. Stock Prices and Social Dynamics. Brookings Papers on Economic Activity, 2, 457-510.
[66] Stulz, Rene M., Ralph A. Walking, and Moon H. Song. 1990. The Distribution of Target Ownership and the Division of Gains in Successful Takeovers. The Journal of Finance, XLV, 817–833.
[67] Sven-Olof Fridolfsson. 2007. A consumers’ surplus defence in merger control (Working Paper No. 686). Stockholm: The Research Institute of Industrial Economics, available at http://www.ifn.se/Wfiles/wp/wp686.pdf.
[68] Tichy, Günther. 2001. What Do We Know about Success and Failure of Mergers? Journal of Industry, Competition and Trade, 1(4), 347-394.
[69] Weinberg, Matthew. 2008. The Price Effects of Horizontal Mergers. Journal of Competition Law and Economics, 4(2), p. 433-447.
[70] Werden, G.J. 1996. A robust test for consumer welfare enhancing mergers among sellers of differentiated products. Journal of Industrial Economics, 44(4), 409–413.
[71] West, Jeremy K. 2007. Dynamic Efficiencies in Merger Analysis (OECD Working Paper No. 77). Paris: Organisation for Economic Co-operation and Development, available at SSRN: http://ssrn.com/abstract=1144029.
[72] Williamson, Oliver E. 1968. Economies as an Antitrust Defence: The Welfare Trade-offs. American Economic Review, 58, 18-36.
Published
2016-11-28
How to Cite
KAMERBEEK, Sjoerd.
MERGER PERFORMANCE AND EFFICIENCIES IN HORIZONTAL MERGER POLICY IN THE UNITED STATES AND THE EUROPEAN UNION.
Journal of Advanced Research in Law and Economics, [S.l.], v. 1, n. 1, p. 16-41, nov. 2016.
ISSN 2068-696X.
Available at: <https://journals.aserspublishing.eu/jarle/article/view/490>. Date accessed: 27 apr. 2024.
Section
Journal of Advanced Research in Law and Economics
Keywords
merger, horizontal merger policy, X-inefficiency, Right Welfare Standard
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