We estimate heterogeneous merger effects where (conditional on covariates) merger effects are allowed to be firm specific.
We are especially interested in examining whether heterogeneous mergers effects predominantly stem from technological or product market heterogeneities. Using detailed firm- and product-specific production, patent, and merger information, we employ a heterogeneous treatment (or merger) effects model.
We find that estimation results stemming from a heterogeneous merger effects model differ from those that consider homogeneous merger effects models.
The estimation results show that merging firms realize substantial heterogeneous post-merger effects on competitive outcomes such as production or prices (post-merger heterogeneity).
More specifically, merger effects vary substantially across merging firms, depending on the firms' pre-merger efficiency levels, price elasticities, and innovative activities.
For example, firms' efficiency level prior to merging determine large post-merger heterogeneities. Moreover, post-merger output further increases (and post-merger price further decreases) if merging firms operate in markets with more elastic demand.
The results also show that product market attributes (differences in inefficiencies and price elasticities) cause larger post-merger heterogeneities compared with technology market attributes.
Among all post-merger heterogeneity determinants, firm efficiencies generate the largest heterogeneous post-merger effects.