Mergers after Cartels: How Markets React to Cartel Breakdown

By Davies, S & Ormosi,P & Graffenberger, M

Using a novel application of recurrent event survival analysis for a sample of 84 EC industries, this paper establishes that cartel breakdown is typically followed by intensive merger activity - especially for cartels detected only after they had already broken down, and where concentration was lower. In a number of cases mergers led to the emergence of dominant leading firms while in most markets where mergers did not occur, post-cartel structure was already consistent with dominance. These results are consistent with the hypothesis that mergers are often designed to establish a new market structure conducive to tacit collusion. Surprisingly few mergers were intervened by the competition authority, apparently because many were individually small, but cumulatively had significant impact on concentration.