Horizontal Mergers, Prices, and Productivity

Posted by Social Science Research Network

Horizontal Mergers, Prices, and Productivity Robert B. Kulick (University of Maryland)

Abstract: Despite being an active area of economic research for decades, many fundamental questions about horizontal mergers remain unanswered. In particular, the extent to which horizontal mergers cause price increases by enhancing market power remains subject to intense debate and the nature of the interaction between the price effects and productivity effects of horizontal mergers is not well understood. We address a number of the current literature’s limitations by taking advantage of the rich microeconomic data collected for plants in the ready-mix concrete industry as part of the Census of Manufacturers (CM). Because of the expansive coverage of the industry offered by the CM, we are able to draw conclusions about horizontal mergers based on a broad sample of mergers, while making use of pricing, quantity, and productivity data that is rarely available in the context of horizontal merger research. We find that over the sample period horizontal mergers are responsible for simultaneously increasing both prices and productivity and that both the price and productivity increases are driven by mergers occurring after the promulgation of the 1982 Merger Guidelines.