Antimerger Policy and Stockholder Returns: A Re-Examination of the Market Power Hypothesis

This work was subsequently published in the Journal of Law and Economics, April 1985.Since 1950 the Department of Justice and the Federal Trade Commission have filed more than 500 (generally successful) antitrust complaints against firms involved in horizontal mergers claiming the mergers would "monopolize" product markets. However, recent capital market based studies designed to test systematically the market power hypothesis in the context of horizontal mergers have failed to support the proposition that the antitrust enforcement agencies have succeeded in selecting anticompetitive mergers for prosecution. This paper extends this capital market based evidence in particular by examining the period after the effective date of the Hart-Scott-Rodino Antitrust Improvements Act, which increased the enforcement powers of the complaining agencies. Our results reinforce the controversial conclusion that, over the past two decades, the typical challenged merger would have been efficient