Summary of Evidence for the Effects of Mergers on Market Power and Efficiency

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Evidence for the Effects of Mergers on Market Power and Efficiency summary
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When a corporation announces a prospective merger, markets react: Target company shares soar, and acquiring company leaders reap plaudits for boldness and vision, while board members vote themselves and executives huge bonuses for negotiating the deal. Clearly money changes hands, but what effects do mergers and acquisitions have on the economy in general? This thought-provoking study by economists Bruce A. Blonigen and Justin R. Pierce looks into whether M&A increases productivity or simply raises prices. getAbstract recommends this technical analysis of productivity and price at US manufacturing plants to economists and executives.

In this summary, you will learn

  • How mergers change prices,
  • How they affect productivity and
  • Why many suggested sources of greater efficiency fail to materialize after M&A.
 

About the Authors

Bruce A. Blonigen is a professor of social science at the University of Oregon. Justin R. Pierce is a principal economist with the Board of Governors of the Federal Reserve System.

 

Summary

More than $4 trillion of global assets change hands in mergers and acquisitions annually. In the United States, new owners take control of one of every 25 of the biggest factories each year. The magnitude of changes to the ownership and management of industrial assets has a significant impact on economic activity, and it is crucial to understand how these shifts affect efficiency and market power in pricing. Previous studies of M&A have either focused on individual deals or have not distinguished between productivity and market power effects. 

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    Ashish Agarwal 4 weeks ago
    The role of regulators in the merger process has not been adequately addressed within the analysis or this summary.

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