A PYMNTS Company

Merger Externalities in Oligopolistic Markets

By  |  November 13, 2013

Posted by D. Daniel Sokol

Klaus Gugler, Vienna University of Economics and Business and Florian Szucs, DIW Berlin, discuss Merger Externalities in Oligopolistic Markets

ABSTRACT: We quantify externalities on profitability and market shares of competing firms in oligopolistic markets through the transition from an n to an n – 1 player oligopoly after a merger. Competitors are identified via the European Commission’s market investigations and our methodology allows us to distinguish the externality due to the change in market structure from the merger effect. We obtain results consistent with the predictions of standard oligopoly models: rivals expand their output and increase their profits, whereas merging firms are negatively affected. This indicates that on average the market power effects of large mergers outweigh the efficiencies.