Description: Reading Group

Location: 360 Heady Hall

Contact Person: Juan Carlos Cordoba

Title: Mergers and Acquisitions: Market Power or Efficiency?

Abstract: Mergers and acquisitions (M&A) can cause large changes to industry concentration and firm productivity. I develop a general equilibrium model of imperfect competition where firms can merge with other firms to analyze the impact of M&A on industry structure, firm productivity, and aggregate outcomes. Despite a rich one-to-one roommate matching process to determine who merges with whom, I am able to characterize the pattern of matching and detail cases of the model that admit analytically tractable solutions. I determine the aggregate level and dispersion of markups that can be attributed to M&A. The level of concentration, as well as aggregate patterns on who merges with whom, support the view that mergers drive higher market power and do not result in large productivity-enhancing synergies. Despite this, counterfactual analysis shows that mergers tend to increase aggregate productivity as they reduce misallocation by reducing the overall dispersion of markups, but decrease output and welfare through a higher aggregate markup. I estimate that mergers increase aggregate productivity by 1.63%, yet decrease output by 3.9%.