Collusion and efficiency in horizontal mergers: Evidence from geographic overlap

We explore the sources of gains in horizontal mergers by exploiting heterogeneity between the merging firms’ geographic footprints. We calculate the geographic overlap between the bidder, target, and their rivals and customers to identify variation in the competitive impact of horizontal mergers. We document significantly positive rival reactions and negative customer reactions when the bidder and target operate in similar geographic regions, consistent with anticompetitive effects in these deals. We also exploit staggered changes in the political affiliation of state attorneys general (AGs) to identify variations in local antitrust enforcement. We show that bidders avoid concentrating mergers when they operate in a high proportion of states with Democratic AGs, and Democratic AGs moderate the effects of concentrating mergers on local rivals and customers. Our evidence supports the argument that geographically concentrating horizontal mergers are more likely to be anticompetitive. We also document the significant role of state-level AGs in the M&A regulatory process.

1. Regulators are concerned about horizontal mergers and invest significant resources in limiting potential anticompetitive outcomes. For example, the Antitrust Division of the United States Department of Justice had a budget of $267 million and 830 employees in 2015, funded by taxpayers and through fees to merging firms. [1] However, the extant finance literature documents scant evidence of anticompetitive effects in horizontal mergers—e.g., Eckbo (1983), Fee and Thomas (2004), Shahrur (2005). These studies present evidence indicating that the average horizontal merger creates value by generating efficiency gains for the merged firm. Therefore, the average within-industry merger appears to enhance welfare. Indeed, Eckbo (1992) notes a puzzling observation that U.S. regulators pursue a

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  • Carson College of Business - Washington State University (Pullman)
  • Oxera (Paris)


Douglas Fairhurst, Ryan Williams, Collusion and efficiency in horizontal mergers: Evidence from geographic overlap, February 2022, Concurrences N° 1-2022, Art. N° 105118

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