Mergers after Cartels: How Markets React to Cartel Breakdown

This paper examines whether cartel breakdown provokes a period of intensive merger activity among the former cartelists, designed to establish tacit collusion. Using a novel application of recurrent-event survival analysis for a pooled sample of 84 European cartels, we find that mergers are indeed more frequent after cartel breakdown, especially in markets that are less concentrated. However, we caution against merely assuming that these mergers are motivated by coordinated effects—alternatively, they may be the consequence of market restructuring, necessitated by more intense competition after cartel breakdown. Further disaggregated analysis of the individual mergers shows that on average these mergers are profitable for the acquiring company and that the tacit-collusion motive is likely to be at work in a large minority of the mergers.