Economics of Mergers

Catalog description

It is not uncommon for two separate and distinct corporate entities within an industry to merge and become one firm. This course includes topics that examine the economics of mergers as well as economic policy with regard to mergers. There often are both pro-competitive and anti-competitive effects of mergers. In the U.S. the Federal Trade Commission has primary responsibility for assessing the balance between effects. Along with the FTC, the antitrust division of the department of justice can analyze potential mergers using economic data and forecasts with tools such as the HHI and four-firm concentration ratio. Legality of non-competitive markets and mergers is also analyzed using the Clayton and Sherman antitrust acts. Topics discussed related to pro-merger economic effects include reduction in the duplication of costly capital, economies of scale, reducing costs by cutting management, human resources, payroll, and other jobs not directly related to production of output. Further, some firms may contend that they are non-viable as a small business, but can survive as a larger competitor as the result of a merger. Finally, mergers may have positive implications for shareholders who effectively own the company. Negative effects of mergers topics are discussed, including a reduction in the number of competing firms, increase in market power, higher prices, reduction in consumer choice, and increased lobbying power of larger firms. This course examines unilateral effects and coordinated effects as identified in the horizontal merger guidelines. Vertical mergers are analyzed as well, where multiple parts of the production process of a final good come under the same ownership. Econometric issues associated with the measurement of unilateral and coordinated effects are discussed. The course concludes with ex-post merger reviews. This course is an applied microeconomics seminar in the field of industrial organization and will seek to provide students with the analytical methods of both the theoretical and empirical analysis of mergers. The course will count toward both the major and the minor in economics.