Market Power versus Efficiency Effects of Mergers and Research Joint Ventures: Evidence from the Semiconductor Industry

Abstract

Merger control authorities may approve a merger based on an "efficiency defense." An important aspect in clearing mergers is that the efficiencies need to be merger-specific. Joint ventures, and in particular research joint ventures (RJVs), may achieve comparable efficiencies possibly without the anticompetitive (market power) effects of mergers. We empirically account for the endogenous formation of mergers and RJVs and provide evidence that at the semiconductor level, mergers and RJVs achieve dominant (net) efficiency effects. Our counterfactuals provide evidence that the efficiency gains caused by mergers would have been achieved by RJVs as well. Therefore, RJVs often represent viable alternatives to mergers from the consumer welfare point of view. At the more disaggregate level we find that the efficiency effects are larger in the microcomponents than in the memory market. This finding emphasizes the importance of market determinants (such as product differentiation and entry) having an impact on efficiency and market power effects. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

How effective is European merger control?

“…12 Merging firms internalize their former negative pricing externality on each other and set higher prices, ceteris paribus. In both Cournot and Bertrand with differentiated products type of models, market output declines and prices rise absent efficiency gains (see Salant et al, 1983;Farell and Shapiro, 1990;or Gugler and Siebert, 2004). Particularly, rival firms gain since they need not bear the quantity reduction of insiders and nevertheless benefit from the higher prices: the merger paradox.…”

Simultaneous Allocation of Bundled Goods through Auctions: Assessing the Case for Joint Bidding

“…Allowing joint bidding increases efficiency by 11.3% and revenue by 9.4%. We also observe that when joint bidding is not allowed, 3 Part of the literature on the formation of joint ventures raises similar concerns regarding their net effect on efficiency (d 'Aspremont and Jacquemin, 1988;Farrell andShapiro 1990 andKamien, Muller andZang, 1992), with little evidence to reach a broad conclusion (Cassiman and Veugelers 2002;Gugler andSiebert 2007 andDuso, Roeller andSeldeslachts, 2014;Suetens, 2005 and. some of the groups were able to form bidding rings and were partially successful at implementing collusive agreements (as detected by low sham bids).…”

The lifespan of semiconductor patents by assignee and patent characteristics

“…Additionally, because the semiconductor industry is a technology-intensive industry [40], its high-end technology is commonly controlled by specific companies that hold a considerable monopoly on the industry. Consequently, the technology development alliances in the global semiconductor industry have decreased yearly [41], and research joint ventures have typically been replaced by mergers for companies to acquire necessary technology [42]. Therefore, patents that are valuable and worth protecting have typically been concentrated on one single patent assignee (company).…”