Empirical Studies on Merger Policy and Collusive Behaviour
Abstract: This thesis consists of four studies focusing on empirical issues in industrial organization.Bid Rigging in Swedish Procurement Auctions: Using a unique data set of procurement auctions carried out by the Swedish National Road Administration, this paper addresses the issue of bid rigging in the Swedish asphalt-paving sector. Both market characteristics and the fact that the Swedish Competition Authority in 2003 initiated legal proceedings against a group of firms active in the market indicate the existence of collusive behaviour. If firms act competitively, they should submit independent bids, conditional on firm- and auction-specific differences. Reduced-form equations are estimated and the hypothesis of conditional independence is tested by analysing if the difference between observed and predicted bids correlates between firms. If negative correlation is observed, one possible explanation is bid rigging. The overall results indicate that collusion may be widespread in the industry and suggest further investigation of the market.Collusion in Procurement Auctions: Structural Estimation of Bidders' Costs: In this paper, the aim is to analyse the existence of collusion in asymmetric asphalt-procurement auctions. Firms that behave competitively should have private costs that are independent, conditional on available firm- and auction-specific information. The hypothesis of conditional independence can be tested and if it is rejected, a possible explanation is collusion. Using a constrained strategy equilibrium concept in solving for equilibrium bid strategies and firms' private costs makes it possible to test the hypothesis of conditional independence while at the same time controlling for firms' strategic considerations. The analysis is based on bid data from procurement auctions carried out in Sweden during the 1990's. The findings are that the hypothesis of conditional independence can be rejected for about half the firm-pairs that are tested. This suggests that collusive behaviour is plausible in the investigated market.An Econometric Analysis of the European Commission’s Merger Decisions: Using a sample of 96 mergers notified to the European Commission (EC) and logit-regression techniques, we analyse the EC’s decision process. We find that the probability of a phase-2 investigation and of a prohibition of the merger increases with the parties’ market shares. The probabilities increase also when the Commission finds high entry barriers or that the market structure post-merger is conductive to collusion. We do not find significant effects of “political” variables, such as the nationality of the merging firms.Comparing Merger Policies: The European Union versus the United States: Merger regulation affects large transactions in the market for corporate control in both the European Union (EU) and the United States (US). This paper compares and contrasts the relevant enforcement policies. US enforcement is broader-based as it attacks oligopoly, unilateral, and dominant firm concerns, while the EU policy focused almost entirely on market dominance. Our analysis of the enforcement policies shows that analytical and evidence considerations have more of an effect in the US, while institutional considerations matter more in the EU. Considering only cases subject to a theory of market dominance (dominant firm), the EU regime appears, on average, slightly more aggressive than US policy for relatively weak cases, while the US policy appears more aggressive for strong cases.
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