Mergers and the Value of Antitrust Deterrence



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    • From the Faculty of Commerce, University of British Columbia, Vancouver. This research has benefited from the comments and suggestions of Lisa Meulbroek, Aileen Thompson, Clas Wihlborg and, especially, Vojislav Maksimovic and Joseph Williams. I am also grateful for comments made by the participants of the conference on “Financial Regulation and Monetary Arrangements after 1992” organized by the Centre for Financial Economics at the Gothenburgh School of Economics (Gothenburgh 1990), the conference on “Corporate Control and Corporate Restructuring” organized by the Centre for Economic Policy Research at the Stockholm School of Economics (Stockholm, 1991), and the 1991 meetings of the American Economic Association and the American Finance Association. Partial financial support from the Social Sciences and Humanities Research Council of Canada is also gratefully acknowledged.


While the U.S. has pursued a vigorous antitrust policy towards horizontal mergers over the past four decades, mergers in Canada have until recently been permitted to take place in a virtually unrestricted antitrust environment. The absence of an antitrust overhang in Canada presents an interesting opportunity to test the conjecture that the rigid market share and concentration criteria of the U.S. policy effectively deters a significant number of potentially collusive mergers. The effective deterrence hypothesis implies that the probability of a horizontal merger being anticompetitive is higher in Canada than in the U.S. However, parameters in cross-sectional regressions reject the market power hypothesis on samples of both U.S. and Canadian mergers. Judging from the Canadian evidence, there simply isn't much to deter.