Duarte Brito

M&A: The Industrial Organization Perspective

by D. Brito, M. Catalao Lopes

ISBN: 9041124519
Format: Hardcover

Drawing on twenty years of merger analysis literature, this single source offers practical solutions to a wide range of problems faced by specialists working in the field of mergers and acquisitions. The authors take an industrial organization approach in which effects on profits, on consumer surplus and on overall welfare are of greatest relevance. The focus is primarily on horizontal mergers, although vertical and conglomerate mergers are addressed when producers of complementary goods are involved.

The discussion proceeds from an analysis of the simplest exercise of market power to evermore complex merger environments. In their detailed coverage of policy evaluation of proposed acquisitions, the authors provide a merger simulation toolkit which can be applied to important recent judicial decisions in the field.

This book will be of great value not only to academics in microeconomics and industrial organization, but also to lawyers and officials seeking expert practical guidance in the business or administrative responsibilities surrounding mergers and acquisitions.

"Ownership Structure of Cable Networks and Competition in Local Access", in J.P. Choi ed., Recent Developments in Antitrust Analysis, The MIT Press (2006), with Pedro Pereira.

ISBN: 0-262-03356-9
Abstract: In this paper, we discuss the role of cable television networks and their ownership structure in promoting competition in the local access market. First, we show that the dual ownership of a local telephone network and a cable network, compared with separate ownership, may increase or decrease incentives to invest in upgrading the cable television network. Second, we argue that separate ownership of the two networks is important to promote competition in local access.
Key Words: Cable Networks, Local Access, Competition
JEL Classification: L43, L96

"Setting upper limits on merger related efficiencies", 2002, Journal of Industry Competition and Trade, 2 (4), pp. 287-309.

Abstract:The purpose of this paper 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 the insiders, that is, to study wether other concentration operations were available but not chosen by the merging or acquiring firms. This may be particularly useful when the authorities are faced with a concentration operation that raises anti-competitive concerns. Insiders will argue that cost reductions are likely to compensate these negative effects. However, if the cost reductions are not firm specific it is possible, in some circumstances, to establish an upper limit on the extent of cost reductions when there are other mergers available. If these mergers were admissible but were dominated by the present one, 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.

Keywords: Mergers, revealed preference, monopolization, efficiency gains

"Preemptive mergers under spatial competition", 2003, International Journal of Industrial Organization, Vol 21/10, pp. 1601-1622.

Abstract: Mergers for market power generally benefit outsider firms more than participating firms.
Hence, outsiders should welcome such mergers between their competitors but, frequently,
this is not the case. Under spatial competition some outsiders gain more than the participating firms but others might benefit less. Thus, if the number of admissible mergers is limited, firms may decide to merge to preempt rival mergers. This paper studies the incentives for preemptive merger by firms engaged in spatial competition.

JEL classification: L10; L40
Keywords: Endogenous mergers; Spatial competition

"Is there a change in efficiency theory?", 2003, International Journal of the Economics of Business, Volume 10, Number 3, pp. 337-345, with Cesaltina Pires.

Abstract: A standard result in oligopoly models is that the more efficient firms have larger market shares. The main question being answered in this paper is: ‘if a firm increases (decreases) its relative efficiency does it increase (decrease) its market share?’. We show that, in two widely used models where more efficient firms have larger equilibrium market shares, it is possible to have a firm getting relatively less (more) efficient than its rivals and, at the same time, increasing (decreasing) its market share.

Keywords: Efficiency Hypothesis; Market Share; Dominant Firm.
JEL classifications: L11, L13.

"Should the authorities consider alternative mergers?", 2005, International Journal of Industrial Organization, Vol 23/1-2 pp. 129-153.

Abstract:This paper illustrates how taking alternative mergers into consideration when analyzing the effects of a proposed merger may provide some information to the antitrust authorities. In particular, the use of revealed preference may allow the authorities to establish an expected upper limit on the efficiency gains obtained in a given merger that also increases the participants’ market power. Such limit can then be compared to the lower threshold necessary for merger approval. The policy implications of this result are discussed.

JEL classification: L41; L10
Keywords: Mergers; Acquisitions; Revealed preference; Synergies

"Mergers in the food retailing sector: an empirical investigation", 2005, European Economic Review, (forthcoming), with Pedro Pita Barros and Diogo de Lucena.

Abstract: We address the problem of merger evaluation, for competition policy purposes, in the retailing sector. The likely effects of a possible merger are analysed ex ante. The novelty of the paper lies in the inclusion of downstream and upstream market power effects on the retailers. Also, it provides an empirical application to the Portuguese food retailing market. The effects of additional concentration on prices are estimated, as well as the price reduction insiders are likely to obtain via an improved bargaining position. The final effect on prices depends on how these cost reductions are reflected in insiders’ prices, i.e., on 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 on an antitrust legislation basis.
Keywords: Horizontal merger; Buyer power; Food retailing

"Mobile Virtual Network Operators: Beyond the Hyperbolae", 2007, Competition Policy International 3(1), with Pedro Pereira (Autoridade da Concorrência).

In this paper, we discuss briefly, and in non-technical terms, some aspects related to the entry of MVNOs. These aspects range from issues related to the entry process itself, such as barriers to entry and exclusionary practices, to the effects of entry on prices and product differentiation.

"Investment and Welfare Implications of the Ownership Structure of Overlapping Networks", 2008, Information Economics and Policy, Vol 20/1, pp. 38-53 with Pedro Pereira (Autoridade da Concorrência).

Abstract : We analyze the impact of the ownership structure of cable television firms on the incentives to upgrade the cable networks to offer telecommunication services. First, we show that dual ownership of a local telephone network and a cable network, compared with separate ownership, may increase or decrease incentives to invest in upgrading the cable television network. Coordination economies benefit dual ownership, and business-stealing benefits separate ownership. Second, we perform a welfare analysis of the investment decision and third, a welfare analysis of the ownership structure.

Keywords: Cable Networks, Local Access, Competition
JEL Classification: L43, L96

“Mergers of producers of complements: how autonomous markets change the price effects”, The Manchester School, forthcoming, with Margarida Catalão-Lopes (Universidade Técnica de Lisboa).

Abstract : We analyze the price effects of mergers to monopoly between producers of complementary goods when there exists a fraction of consumers that value only one of the components. We show that customers are more likely to face a price decrease for the composite good under this setting than when such consumers do not exist.

Keywords : mergers, complements, price competition.
JEL Classification: L41