Beiträge zur Jahrestagung des Vereins für Socialpolitik 2019: 30 Jahre Mauerfall - Demokratie und Marktwirtschaft - Session: Empirical Industrial Organisation III No. E22-V3
This paper analyzes the effects of mergers on markups of non-merging rival firms in narrowly defined markets. Combining data from the European Commission's market assessments in merger decisions with production data, we use recent methodological advances in the estimation of production functions to estimate markups and total factor productivity. We investigate the performance of almost 600 rival firms in close to 200 merger cases before and after the change in market structure. Using a propensity matching approach combined with a difference-in-differences estimator, we find that rivals significantly increase their markups in the years after a merger. The effects are concentrated in markets with few competitors, among firms with initially high market shares and in domestic merger cases. Consistent with increasing market power, we also provide evidence that changes in markups are unlikely to be explained by cost reductions and that sales and employment decline after mergers.