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Mergers and difference-in-difference estimator: Why firms do not increase prices?


Difference-in-difference methods are being increasingly used to analyze the impact of mergers on pricing and other market equilibrium outcomes. Using evidence from an exogenous merger between two retail gasoline companies in a specific market in Spain, this paper shows how concentration did not lead to a price increase. In fact, the conjectural variation model concludes that the existence of a collusive agreement before and after the merger accounts for this result, rather than the existence of efficient gains. This result may explain empirical evidence reported in the literature according to which mergers between firms do not have significant effects on prices.

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Fig. 1


  1. 1.

    In fact, Bougette and Turolla (2008) study what factors affect the probability to enhance merger remedies in European Commission´s decisions. High market power is a driver of this decision.

  2. 2.

    See Budzinski and Ruhmer (2010) for an in-depth explanation of merger simulation models and their application to competition policy.

  3. 3.

    Sapienza (2002) reported that the effect on loan contracts depended on the size of the banks involved in the merger deal. If the firms had a sizeable market share, interest rates rose; if they had a smaller market share, interest rates fell.

  4. 4.

    See Weinberg (2008) for a more detailed discussion of most of the above studies.

  5. 5.

    Sen and Townley (2010) evaluated the effects of reductions in outlet density on retail prices using Canadian data from 1991–1997. A 27 % decline in retail outlets led to a 9 % increase in retail prices. The authors also considered two mergers in this period but reported mixed, and not highly statistically significant, impacts on prices.

  6. 6.

    Hastings (2004) reports the change in vertical structure caused by the merger between the vertically-integrated company ARCO and the independent, Thrifty gasoline stations. However, Taylor et al. (2007), using a different database, found no significant increase in prices.

  7. 7.

    The Royal Decree 6/2000 was passed on 23 June.

  8. 8.

    In this sense, Brouwer (2008) states that EU merger analysis has changed to an efficiencies argument, while this is not the case. So, it should have been rejected.

  9. 9.

    Section 5 includes a more detailed explanation of the terminology of the variables used in the analysis.

  10. 10.

    Results from the pricing equations without Q as explanatory variables provide similar results.

  11. 11.

    Problems of multicollinearity are not found between the fixed effects of the month and the spot price of gasoline (the correlation ranges from −0.18 to 0.25) or between the fixed effects of island and transport costs (the correlation ranges from −0.42 to 0.61).

  12. 12.

    In fact, the report provided for the companies by the Tribunal (Expedient C86-04, footnote 105) affirms that (…) an increase in prices of less than 0.15 % could be expected because of the concentration.

  13. 13.

    Bertrand et al. (2004) results indicate that the DiD estimator may have a bias that leads to the null hypothesis of no effect being rejected when the error term is autocorrelated. While our results may also suffer from this bias, it would strengthen our findings that the merger has not had any significant effect on prices, even though autocorrelation might lead to such an effect being detected incorrectly.

  14. 14.

    If we follow the approximation of Dafny et al. (2012), where the difference-in-difference variables interact with the change in the HHI, the results do not change significantly. The results are available on request to authors.

  15. 15.

    The building of the structural model is fully summarized in Perdiguero and Jiménez (2009).

  16. 16.

    We introduced a cluster by island to take into account the fact that the error term could be different on each island. Our results remained constant however.

  17. 17.

    Corts (1999) shows how the conduct parameter method can underestimate the degree of market power if firms are involved in dynamic efficient collusion. In our case, the conduct parameter is near the monopoly level so if this bias exists it has only a very slight effect on our estimates. Various studies, including Puller (2009), propose different methodologies to solve this bias. Unfortunately they require firm-level data which we do not have access to.


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Thanks are due to Albert Banal, Joan-Ramón Borrell, Javier Campos, Andrés Gómez-Lobo, Daniel Hosken, Consuelo Pazó, George Symeonidis and an anonymous referee for their helpful comments. The usual disclaimer applies.

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Correspondence to Juan Luis Jiménez.

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Jiménez, J.L., Perdiguero, J. Mergers and difference-in-difference estimator: Why firms do not increase prices?. Eur J Law Econ 45, 285–311 (2018).

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  • Mergers
  • Gasoline market
  • Difference-in-difference
  • Conjectural variation

JEL Classification

  • L12
  • L41
  • L44