Are Retailing Mergers Anticompetitive? An Event Study Analysis

We examine the abnormal returns of rival firms to determine whether four retailing mergers that occurred during the late 1980s reduced competition. We use the stock returns of retailers in geographic markets unaffected by the merger to control for the efficiency-signaling effect of the merger. Using this methodology, we find that rival firms experienced positive abnormal returns from May Company's 1986 acquisition of Associated Dry Goods and American Stores' 1988 acquisition of Lucky Stores. These results offer some evidence that retailing mergers that lead to large increases in concentration in already concentrated markets may lessen competition and lead to higher product market prices.