Strategic Buyers, Horizontal Mergers and Synergies: An Experimental Investigation

This paper reports an experiment designed to evaluate interrelationships between strategic buyers, market power and merger-induced synergies. The experiment consists of 40 posted-offer quadropolies. Treatments include the use of simulated or human buyers, seller consolidations and merger-induced fixed cost and unit cost synergies. In the simulated-buyer markets we observe behavior generally consistent with comparative static predictions: prices rise postmerger, and unit (but not fixed) cost synergies may exert some price-moderating effect. The addition of powerful buyers changes results markedly. Although prices are lower in the human buyer markets, outcomes are more variable and predicted comparative static effects are no longer observed. * We thank without implicating Dan Kovenock, Paul Pecorino, Charissa Wellford and two anonymous referees for their helpful comments. Thanks also to Matthew Nuckols for programming assistance. Financial support from the U.S. Federal Trade Commission, the National Science Foundation and the Virginia Commonwealth University Faculty Excellence fund is gratefully acknowledged. The opinions in this paper are the authors’ and do not necessarily represent the views of the Federal Trade Commission, or any individual Commissioner. Copies of instructions, the experimental data, and some supplementary tables are available at http://www.people.vcu/~ddavis.