Can Entry or Exit Event Studies Inform Horizontal Merger Analysis? Evidence From Grocery Retailing

Abstract

This study estimates how prices change following the entry and exit of grocery retailers. We estimate the effects of entry (exit) by comparing affected markets to a set of unaffected markets using both a difference-in-difference estimator and a synthetic control estimator. We find that entry typically results in reduced prices. More surprisingly, we find that exit is frequently associated with falling prices. Our estimated effects of entry on grocery prices are similar in magnitude to estimates of merger price effects in the supermarket industry. This finding suggests that entry event studies may be a useful tool for horizontal merger analysis. (JEL L11, L4,

Entry into exit: insolvency in English professional football

“…()) and grocery retailing (Hosken et al . ()). The main findings are that the probability of exit tends to decrease with firm size and that the relationship between firm age and turnover is often U‐shaped, with both very young and very old firms at higher risk than middle‐aged firms.…”

“…Dunne et al (1988), Disney et al (2003), Honjo and Harada (2006), Esteve-P erez et al (2010), Fackler et al (2013), Lee and Mukoyama (2015), and industry-specific datasets, e.g. Airlines (Joskow et al (1994)) and grocery retailing (Hosken et al (2016)). The main findings are that the probability of exit tends to decrease with firm size and that the relationship between firm age and turnover is often U-shaped, with both very young and very old firms at higher risk than middle-aged firms.…”

Do retail mergers affect competition? Evidence from grocery retailing

“…Basker andNoel (2009), Hausman andLeibtag (2007), and Hosken, Olson, and Smith (2016), for example, find that the estimated price decline following entry varies from roughly 1% to as much as much as 7%. Hosken, Olson, and Smith (2016) also show that exit can affect the market price for food retailers. 23 Most medium-sized and all large CBSAs experience some entry and exit during our sample period.…”

“…53 Antitrust economists have developed a number of techniques to measure the intensity of competition between competing retailers beyond market concentration to help identify which retailing mergers are most likely to be problematic (see Hosken & Tenn [2016]for a recent survey). 54 In related work, Hosken, Olson, and Smith (2016) examine the efficacy of using market entry and exit studies to forecast the likely competitive impact of horizontal mergers. Implicitly, this methodological approach assumes that the price impact of entry (exit) is the reverse of (the same as) a horizontal merger.…”

“…In related work, Hosken, Olson, and Smith () examine the efficacy of using market entry and exit studies to forecast the likely competitive impact of horizontal mergers. Implicitly, this methodological approach assumes that the price impact of entry (exit) is the reverse of (the same as) a horizontal merger.…”