A Practical Application of Event Studies in Merger Assessment: Successes and Failures

"The aim of this article is twofold. First, this article aims at using event studies as an ex ante method to assess the anticompetitive impact of a merger. The movement of the share prices of the merged firms and their competitors on the announcement day indicates whether customers expected the merger to be profitable for the firms. An assumption is made that firms increase profitability mainly by increasing prices (reducing output) in the market, thus adopting conduct that has an adverse impact on competition. Similarly, the movement of the share prices of the merged firms and their competitors on the announcement  day indicates whether customers expect these mergers to be profitable for the firms.

Secondly, this article will examine cases studies and assess whether the authority’s decision was correct according to investors’ perceptions. The merger cases that will be presented are Sony/BMG and Oracle/PeopleSoft, dealt with by the European Commission (“the Commission”), as well as ITV/BSkyB, dealt with by the Office of Fair Trading (OFT)."