Evidence for the Effects of Mergers on Market Power and Efficiency

Abstract

Study of the impact of mergers and acquisitions (M&As) on productivity and market power has been complicated by the difficulty of separating these two effects. We use newly-developed techniques to separately estimate productivity and markups across a wide range of industries using detailed plant-level data. Employing a difference-in-differences framework, we find that M&As are associated with increases in average markups, but find little evidence for effects on plantlevel productivity. We also examine whether M&As increase efficiency through reallocation of production to more efficient plants or through reductions in administrative operations, but again find little evidence for these channels, on average.The results are robust to a range of approaches to address the endogeneity of firms' merger decisions.

The Drivers of Income Inequality in Rich Countries

“…Since the early 2000s, cash flow has been on the rise, investment has declined, while pay‐outs to shareholders have increased (Mason, ). Finally, the hostile takeovers, mergers and acquisitions made possible by the availability of credit may increase industrial concentration and mark‐ups (Blonigen and Pierce, ).…”

Employment growth following takeovers

“…One type is expected to raise market power and reduce employment, whereas a second type of efficiency‐enhancing mergers is expected to raise employment. This differs from Blonigen and Pierce (), who estimate the effect of mergers on different dependent variables, such as productivity or the markup, but impose a uniform effect for all mergers in their sample. In contrast, we focus on employment as key performance variable, but allow for different effects for different subsets of mergers…”

“…() document large physical productivity effects of mergers and an even larger boost to firm profitability. Blonigen and Pierce () find robust support for higher markups and a positive effect on revenue‐based total factor productivity (TFP) for acquired establishments across the entire US manufacturing sector, but no effect on output‐based TFP, a proxy for efficiency. However, none of these studies have looked at employment effects.…”

Employment Growth Following Takeovers

“…This differs from Blonigen and Pierce (2016), who estimate the effect of mergers on different dependent variables, such as productivity or the markup, but impose a uniform effect for all mergers in their sample. In a first step, we match merging firms and control firm pairs exactly on a set of discrete characteristics that create cells with unique combinations of values for all variables.…”

“…Acquirers often argue that reduced variable costs can offset market power and lead to lower prices, which in turn can raise optimal output and employment. Blonigen and Pierce (2016) find robust support for higher markups and a positive effect on revenue-based total factor productivity (TFP) for acquired establishments across the entire US manufacturing sector, but no effect on output-based TFP, a proxy for efficiency. Working with detailed historical data for the Japanese cotton spinning industry, Braguinsky et al (2015) document large physical productivity effects of mergers and an even larger boost to firm profitability.…”