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Abstract
Merger control can be assessed simply by observing price movements of the product in question. In this study, three ex-post merger evaluations show statistically significant increase in price. Thus, in each case, the change in market power is analyzed in terms of changes in market sales and market share. The analyses indicate that market sales values increased, but market share decreased significantly. Although several studies showed the market price situation before and after a merger, this study is the first to analyze the appropriateness of merger control in terms of market sales and market share. In addition, one of the merging parties was likely to reposition its production lines, indicating that mergers and acquisitions may be used as a tool for strategic product differentiation. That is, under such merger regulations, leading examples of a merging party developing a marketing strategy are indicated.
Acknowledgments
Support during preparation of this paper was provided by “Ex-post Examination of Business Combination” project members Hiroyuki Odagiri, Noriyuki Doi, Kuninobu Takeda, and Chiharu Yanagida. Taisuke Matsubae and Yasushi Kudo also provided useful input, and I want to express appreciation for their cooperation. I would also like to express special thanks to Takayasu Matsuoka for support in the research and estimations. I would like to thank participants of the seminar of Competition Policy Research Center, American Law and Economics Association, National Taiwan University for helpful comments.
Disclosure statement
The opinions in this paper are the personal views of the writer and have nothing to do with the organization to which the writer belongs.
Notes
* Accepted by Arijit Mukherjee upon recommendation by Hong Hwang.
This paper represents the achievement of a subproject of the umbrella project, “Ex-post Examination of Business Combination,” a joint study with the Competition Policy Research Center.
1. In this paper, the term “merger” includes all types of business combinations, such as stock acquisitions, establishing a holding company, and others.
2. See “Retrospective Analysis of Agency Determinations in Merger Transactions Symposium,” 28–29 June 2013, American Bar Association. http://www.americanbar.org/calendar/2013/06/antitrust_retrospectivemergeranalysissymposium.html (checked on 2014/8/5).
3. Angrist and Pischke (Citation2010), who conducted an overview of the progress of positive economics following the criticism of Leamer (Citation1983), argued for the importance of studies based on research design. Because a systematic examination of cause-and-effect relations using collected data could identify true effects, these ex-post examination arguments are important to the development of policies that regulate mergers. However, on this point, Nevo and Whinston (Citation2010) provided criticism of the following various aspects: (i) random examinations are difficult in an oligopolistic market, (ii) a merger is endogenous as companies attempt to respond to a change in the market, thus the advantage of structural estimation is significant, and (iii) data availability remains problematic.
4. The influence of mergers on prices was discussed using upward pricing pressure and revised merger guidelines from the US.
5. According to the company website, a capital and business alliance was concluded between the two companies on 1 February 2007. Ajinomoto was to acquire 33.4% of the outstanding shares of Yamaki around March 2007 by an increase in capital through a subscription for new shares based on the allocation of new shares to a third party and a transfer of shares. http://www.ajinomoto.co.jp/press/2007_02_01.html.
6. New Mitsui Sugar, Taito, and Keiesu announced that they concluded a merger agreement with a merger date of 1 April 2005. http://www.mitsui-sugar.co.jp/investor/pdf/20040408_gappei.PDF.
7. Nissin acquired all of the shares of Myojo in December 2006. See the following website: http://www.nissinfoods-holdings.co.jp/english/corp/history.html.
8. Screening business combinations is governed by Article 10 of the Anti-Monopoly Act. This section is based on the information posted on the JFTC website: http://www.jftc.go.jp/ma/jirei2/H18jirei1.html.
9. The product description is as follows (quoted from the previous JFTC website): “Flavor seasonings refer to the product that was produced by the needs seeking to easily create flavors close to natural soups without taking time to make soup stock and for which flavor materials such as dried bonito flakes are pulverized and flavors such as salt, etc., are mixed. Both flavor seasonings and liquid flavor seasonings are seasonings to make soup stock. Flavor seasonings are granules or powders, and therefore, turned into soups in the hot water, while liquid flavor seasonings are liquid so they can be used as liquid soup in unchanged form. Accordingly, in cooking foods, liquid flavor seasonings have higher workability than flavor seasonings but their cost per unit used is high. Sauces for noodles, etc., are liquid flavors produced by adding soy sauce and sweet cooking rice wine to materials used for flavor seasonings. They are used mainly for sauces for soba and udon noodles, as well as Japanese boiled foods and sautéed foods.”
10. Specifically, in the field of trade, other than household flavored seasonings, Yamaki held only a small percentage of the market share, and the increase in its share attributable to business integration was minimal. Regarding the market definition, we do not focus on the details of the method; a particular field of trade denotes the scope for determining whether the effect of the business combination may be to restrain competition and is determined, in principle, in terms of substitutability for users, such as the product range that is the subject of a particular trade and the range of trading areas. Further, when necessary, substitutability for suppliers is also considered.
11. CR4, for the cumulative share ratio of the top four companies, is 75.8 (2003) and 62.3 (2008). See the following website: http://www.jftc.go.jp/katudo/ruiseki/ruisekidate1920.html. Regarding the purpose of this merger, the company announced the following in its briefing materials: “The best measure to respond to severe environment is to strengthen corporate competitiveness as a solid company which jointly uses a spoon brand, for example the establishment of an effective production structure on a nationwide scale through the enhancement of nationwide sales channels and unification of sales policies. We have concluded that this great integration of the Mitsui Group will lead to the creation of a true order and stability in the industry and, therefore, have decided on this merger.”
12. Regarding product forms, the specific fields of trade for the screening of mergers by the JFTC included: (1) pillow-type instant noodles, (2) cup-type instant noodles, (3) cup-type soup with noodles, (4) chilled noodles, and (5) frozen noodles. The competitive conditions in markets related to the particular field of trade received consideration. In determining the substantial restraint of competition through both unilateral and coordinated conduct, the JFTC considered the merger from the perspective of various factors.
13. See the JFTC’s website: http://www.jftc.go.jp/ma/jirei2/H18jirei2.html.
14. We check the parallel trends between the targeted party and control group in subsequent figures. Both the price and the output regressions are reduced forms of a potentially complex demand system, cost function, and equilibrium specification. A homothetic AID’s model would lead to log price and revenue share as the appropriate specifications for price and quantity in these reduced forms, and other demand systems would lead to other specifications.
15. As pointed out by Hosken et al. (Citation2002), price changes for weekly data may not be evaluated appropriately given special sales at retail stores or for other reasons. Considering this issue, in this paper, we defined the price calculation period as one month and the price of certain goods in a certain month as a monthly average unit price. The monthly average unit price is obtained by dividing the total sales amount by the total sales quantity of the product.
16. The standard and formal theory of a horizontal merger in a Cournot oligopoly indicates that any merger not creating a synergy effect increases price (Farrell and Shapiro Citation2004).
17. Data were purchased from a private data provision company (KSP and Ryutu Keizai Kenkyu-jo).
18. We prepared the following price index. For example, first, for the monthly price index of a certain company (for example, Ajinomoto), the weekly average prices are transformed into monthly average prices; subsequently, the price of the base month for each item and the price of the comparison month are indexed. These indexes represent those of the month. Then, at approximately the end of the year, the base month is revised each January of the following year.
19. Song (Citation2012) provided the post-merger repositioning evidence for the personal computer market.
20. We use the White standard errors and covariance treatment for the heteroskedasticity problem. The serial correlation of these estimations was not a serious problem. See the Durbin–Watson statistics in Table .
21. As noted, we estimated the weighted sales values for household flavored seasoning.
22. As with household flavored seasoning, we estimated the weighted sales values.
23. A need is suggested to exist for merger control to examine the effects caused by a merger on product composition and positioning because some consumers may benefit but others may be hurt by the merger.