Mergers and market power: evidence from rivals' responses in European markets

We analyze the effects of M&A on the markups of non-merging rival firms across a broad set of industries. We exploit expert market definitions from the European Commission's merger decisions to identify relevant competitors in narrowly defined product markets and estimate markups as a measure of market power. Our results indicate that rivals increase their markups after mergers. Consistent with increases in market power, the effects are particularly pronounced when pre-merger concentration is high, when competitors are few, and when relevant markets are national. Merger rivals also reduce their employment, sales, and investment, whereas their profits increase.