The Role of Market Structure in Merger Behavior

A matching model serves as the basis for empirically examining the role that 3 elements of market structure - concentration, advertising intensity, and research and development intensity - play in merger behavior. Market structure data are drawn from the COMPUSTAT Expanded Annual Industrial Tape, the COMPUSTAT Expanded Annual Industrial Research File, and the Federal Trade Commission's Merger Series for 83 firms acquired from 1970 to 1977 and the companies that acquired these firms. Relatively strong systematic relationships are found to exist between certain dimensions of acquired and acquiring firms' market structures. Specifically, a very strong positive relationship exists between the advertising intensity of the acquiring firm's industry and that of the acquired firm's industry. Use of the conditional logit model reveals that when the advertising intensity of the acquiring firm's industry is qualitatively accounted for, industry advertising plays a major role in merger behavior.