Giovanni Morzenti (2:00 pm – 2:40 pm)
Antitrust Policy and Innovation
I study whether loosening antitrust policy discourages innovation of merging firms. A natural experiment on a relaxation of pre-merger notification rules allows me to compare mergers notified to the authorities with mergers that are not notified. I develop a new text analysis methodology to identify horizontal mergers between close competitors, even for small private firms. For this exercise, a natural language processing model is trained on the corpus of US published patents. After the policy change, non-notified horizontal mergers lead to 30% reduction in patenting activity. To understand the underlying mechanism, I build a model with endogenous merger choice where the optimal antitrust policy deters anticompetitive mergers. Consistently with the deterrence effect of merger policy, the number of non-notified anticompetitive mergers rise after the relaxation of notification rules. The empirical results imply that deterred mergers are actually harmful to innovation.
Debashrita Mohapatra (2:40 pm – 3:20 pm)
Dealer Location, Mergers, and Consumer Welfare in the Automobile Industry
This article investigates the effects of an automobile merger on prices, the equilibrium dealership network, and consumer welfare. A merger increases the market power of the merging firms leading to a rise in prices. At the same time, due to cost-saving incentives and to avoid cannibalization, merging brands and competitors may restructure their dealership networks. To evaluate the welfare effects of a merger by considering both those effects, I estimate a structural model of the Belgian automobile industry, where firms make endogenous decisions on prices and their dealership networks. A counterfactual analysis of PSA group's acquisition of the Opel brand shows that car prices increase after the merger. Additionally, the merged firm and its competitors’ dealership network shrinks due to the merger. In particular, the Opel dealership network decreases by 17% and Peugeot by 8%. The results suggest that while higher prices following a merger unambiguously harm consumers, the investment incentives, leading to rearrangements in the dealership network, may have heterogeneous implications for consumer welfare, which regulators often ignore while evaluating a merger.
Fernando Riveiro Formoso (3:20 pm – 4:00 pm)
Factor Misallocation and High-Growth Firms in Spain
The Spanish economy has recently experienced a poor aggregate performance accompanied
by the prevalence of low-growth, small firms.
This paper relates these facts to the phenomenon of high-growth-potential firms. I study whether young firms are deterred from growing by financial frictions, and its macroeconomic implications. Using financial information of companies, I find that firms are heterogeneous in expected growth rates in Spain. Additionally, dynamic life-cycle moments are informative about frictions affecting young firms. I develop a firm-dynamics general equilibrium model considering a firm-level productivity process and frictions.
I calibrate two alternative models, with and without expected-growth-rate heterogeneity, to match data on input life-cycle allocations. In the model with heterogeneous expected growth, high-growth-potential firms are prevented from growing by financial frictions, and eliminating borrowing constraints generates large aggregate gains. In the model without this source of heterogeneity, there are less high-growing firms and aggregate effects from removing financial frictions are smaller.
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