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Ensaios em economia industrial: fusões e aquisições
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The dissertation is composed of five independent chapters. The first one is a brief introduction to the theoretical literature on horizontal mergers, destined for readers who are not familiar with it.
The second chapter studies the impact of a two firm merger when firms compete in prices and products are spatially differentiated (not necessarily in geographic terms). This merger is assumed to have no impact on costs
and is consequently motivated by market power alone. The impact of the merger on rivals will depend on their relative location and as a consequence, the set of outsider firms will not be homogeneous. Some outsiders will gain more from the merger than the merging parties but others will benefit less.
This differs from earlier work in which it is assumed that the products are symmetrically differentiated (in the sense that any rival's price increase affects a given firm in the same way) and, therefore, (i) the merger has the
same impact on each outsider and (ii) the impact of the merger does not depend on the identity of the merging parties. In most of the models on horizontal mergers, outsiders profit more from the merger than insiders.
This can lead to a hold up situation if the decision to merge is endogenous.
The best thing that could happen to a firm would be to witness former rivals merging, but if all firms considered this, which ones would be the first to merge? In the presented model, firms have a clear incentive to merge
because they may fear that a damaging merger may take place. There is a pre-emptive motive for mergers which is to eliminate the possibility of being one of the less benefitted outsiders.
The third chapter is a policy oriented work. Its purpose is to show that a complementary entry analysis could be performed by the authorities when assessing the welfare impacts of a merger. In addition to analyzing the likelihood and impact of post -merger entry by other firms, the authorities could also study pre -merger alternatives for insiders, that is, to study if other concentration operations were available but were not chosen
by the merging or acquiring firms. This may be particularly useful when the authorities are faced with a concentration operation that raises anticompetitive concerns. Insiders will argue that cost reductions are likely to
compensate any eventual negative effects. However, if the cost reductions are not firm specific it is possible to establish an upper limit on the extent of the cost reductions when there are other mergers available. The main
argument is that if these mergers were admissible but were dominated by the one under scrutiny, information is revealed about the extent of cost reductions. This information may lead to the authorities updating their beliefs on efficiencies. Such updates may lead to the modification of the decision to approve or reject the merger.
The fourth chapter discusses the problems of using the standard Farrell and Shapiro condition to mergers in sectors where upstream markets are relevant. The standard condition does not consider the impact the merger
has on upstream firms, namely producers. Part of the gain insiders obtain from the merger may result from lower payments to producers. As it is highly likely that the insiders' revenue decreases with the merger, the profitability
of the merger may depend solely on these lower payments. This means that the standard condition does not adequately measure the external effect because it neglects the change in producer profits and,therefore, it is not a suficient condition for welfare to increase. An alternative sufficient condition for the desirability of horizontal mergers is presented and its extensions to an open economy are analyzed.
The final chapter deals with the issue of mergers in the distribution or retailing sector. It provides an empirical application to the Portuguese food retailing market. A possible merger is analyzed according to the national competition law. The effects of additional concentration on prices are estimated, as well as the price reduction insiders are likely to obtain (for a limited set of producers) via an improved bargaining position. The final effect on prices depends on how these cost reductions are reflected on insiders' prices - the pass through rate. For realistic values of this rate we find that the merger in question will most likely increase consumer prices
and, therefore, should not be allowed given the national legislation.