Number of Mergers Increases After Cartel Breakdown

In the three years following a cartel breakdown, the number of mergers is significantly higher than in the three years preceding the collapse. A recent study conducted by the Centre for European Economic Research (ZEW) in Mannheim has verified this correlation. Comparing the three-year periods before and after a cartel breakdown in various economic sectors, the worldwide number of mergers increases by up to 51 per cent after a collapse. In the three years preceding cartel collapses, the branches observed in the study recorded 696 company mergers worldwide. In the three years after the breakdowns, however, 1,052 mergers were realised. If the sample is narrowed down to horizontal mergers only, i.e. mergers between companies in the same industry operating on the same production stage, the number of mergers worldwide increases by as much as 83 per cent (from 196 to 359 mergers worldwide).

ZEW also examined the figures for mergers involving at least one European company and the figures for mergers involving exclusively European companies. In both cases an increase in the number of mergers is clearly observable, though not as voluminously as for mergers worldwide.

The results of the ZEW study suggest that competition authorities take into consideration that the companies involved possibly consider mergers to be a "second-best" alternative to the recently collapsed cartel. Former cartel members might try to systematically regain the market power they have lost by increasing merger activities. Furthermore, the ZEW study indicates the need to re-allocate or expand resources in competition authorities, law offices and consulting firms to be able to efficiently deal with the increased number of mergers.

The ZEW study is based on two data sets. The first data set contains all cartel cases decided by the European Commission between 2000 and 2011. It provides case-specific information such as the type and duration of a cartel and the number of companies involved as well as company-specific information including the duration of cartel involvement or the volume of fines. This data set includes information about 73 cartel cases of the European Commission and 464 cartel members. However, only 22 cartels could be investigated due to insufficient data or because the cartels in many sectors were overlapping in time, making it impossible to examine the impact of a single cartel breakdown.

The second data set is the ZEPHYR data base by Bureau van Dijk which contains information on worldwide mergers and acquisitions, such as the type of merger, transaction volumes and companies involved. ZEW researchers filtered out 5,244 companies from 24 sectors for the study.

Typically, competitors establish a cartel to reduce competition and increase profits. Causing serious economic damage, e.g. higher consumer prices or reduced innovation efforts, and generating no societal benefits that could be traded off against anti-competitive effects, cartels are prohibited in many anti-trust legislations around the world.

Mergers unite two or more companies to a single new one. The main objective of a merger is to benefit from economies of scope and increase profits. There are three types of mergers: horizontal mergers take place between two or more companies operating on the same level of the value chain for a product; vertical mergers involve companies from different levels of the value chain of a product or service leading to upward or downward vertical integration; and conglomerate mergers involve two or more firms operating in different value chains.

For more information please contact

Florian Smuda, Phone  +49 621/1235-233, E-mail smuda@zew.de