Impact of Mergers and Acquisitions on Consumers- Welfare: Experience of Indian Manufacturing Sector
In the context of introduction of deregulatory policy measures and subsequent wave of mergers and acquisitions (M&A) in Indian corporate sector since 1991, the present paper attempts to examine the welfare implications of this wave. It is found that M&A do not have any significant impact on consumers- welfare. Instead, consumers- welfare is significantly influenced by exports intensity, imports intensity, advertising intensity, technology related efforts, and past profitability of the firms. While the industries with higher exports orientation or greater product differentiation or better financial performance experience greater loss in consumers- welfare, it is less in the industries with greater competition from imports or better technology. Hence, the wave of M&A in Indian manufacturing sector in the post-liberalization era may not be a matter of serious concern from consumers- welfare point of view. Instead, in many cases, M&A can help the firms in consolidating their business and enhancing competitiveness, and this may benefit the consumers in the form of greater efficiency and lower prices.
[1] Agarwal, M. (2002), Analyses of Mergers in India, M. Phil Dissertation,
University of Delhi, Delhi.
[2] Agarwal, M. and A. Bhattacharya (2006), Mergers in India: A Response
to Regulatory Shocks, Emerging Markets Finance and Trade, 42(3), pp.
46-65.
[3] Banerjee, A. and E. W. Eckard (1998), Are Mega-Mergers
Anticompetitive? Evidence from the First Great Merger Wave, RAND
Journal of Economics, 29(4), pp. 803-827.
[4] Basant, R. (2000), Corporate Response to Economic Reforms, Economic
and Political Weekly, 35(10), pp. 813-822.
[5] Beena, P. L. (1998), Merger and Amalgamations: An Analysis of the
Changing Structure of Indian Oligopoly, Dissertation, Centre for
Economic Studies and Planning, JNU, New Delhi.
[6] Beena, P. L. (2000), An Analysis of Mergers in the Private Corporate
Sector, Working Paper No. 301, Centre for Development Studies,
Kerala.
[7] Beena, P. L. (2004), Towards Understanding the Merger Wave in the
Indian Corporate Sector - A Comparative Perspective, Working Paper
No. 355, Centre for Development Studies, Kerala.
[8] Beena, P. L. (2008), Trends and Perspectives on Corporate Mergers in
Contemporary India, Economic and Political Weekly, 43(39), pp. 48-56.
[9] Beeslay, M. E. (1973): "Mergers and Economic Welfare," in Mergers,
Takeovers and the Structure of Industry: Ten Papers on Economics,
Law, Rules, The Institute of Economic Affairs, London.
[10] Breusch ,T. S. and A. R. Pagan (1980), The Lagrange Multiplier Test
and its Applications to Model Specifications in Econometrics, Review of
Economic Studies, 47(1), pp. 239-253.
[11] Chandrasekhar, C. P. (1999), "Firms, Markets and the State: An
Analysis of Indian Oligopoly", in A. K. Bagchi (Eds.), Economy and
Organization- Indian Institutions under Neo Liberalized Regime, Sage
Publications, New Delhi.
[12] Chatterjee, S. (1986), Types of Synergy and Economic Value: The
Impact of Acquisitions on Merging and Rival Firms, Strategic
Management Journal, 7(2), pp. 119-139.
[13] Chen, C. and C. Findlay (2003), A Review of Cross-border Mergers and
Acquisitions in APEC, Asia-Pacific Economic Literature, 17(2), pp. 14-
38.
[14] Cowling, K. and D. C. Mueller (1978), The Social Costs of Monopoly
Power, Economic Journal, 88(352), pp. 724-748.
[15] Cowling, K. and D. Mueller (1981), The Social Costs of Monopoly
Revisited, Economic Journal, 91(363), pp., 721-725.
[16] Church, J. and R. Ware (2000), Industrial Organization: A Strategic
Approach, Irwin McGraw-Hill, Boston.
[17] Das, N. (2000), A Study of the Corporate Restructuring of Indian
Industries in the Post-New Industrial Policy Regime - The Issue of
Amalgamations/Mergers, Unpublished Ph.D. thesis Submitted to
University of Calcutta, Calcutta.
[18] Dasgupta, P. (2004), Establishing an Effective Competition Policy
System: the Challenges Facing India in Implementing its New
Competition Law, presentation made at the WTO/UNESCO/ASCI
Regional Seminar for Asia and Pacific Economies on Competition
Policy, Development and the Multilateral Trading System, Hyderabad,
India, 6-8 October.
[19] De Guevara, J. Fern├índez, J. Maudos, and F. Pérez, (2005), Market
Power in European Banking, Journal of Financial Services Research,
27(2), pp. 109-138.
[20] Dixit, A. and N. Stem (1982), Oligopoly and Welfare: A Unified
Presentation with Application to Trade and Welfare, European
Economic Review, 19(1), pp., 123-143.
[21] Ghose, A. (1975), Concentration and Controls in the Indian Industry,
Journal of Industrial Economics, 23(3), pp. 203-22.
[22] Gisser, M., (1986), Price Leadership and Welfare Losses in U.S.
Manufacturing, American Economic Review, 76(4), pp., 756-767.
[23] Gisser, M., (1989), Price Leadership and Welfare Losses in U.S.
Manufacturing: Reply, American Economic Review, 79, pp., 610-613.
[24] Goldar, B. and S. C. Aggarwal (2004): Trade Liberalization and Price-
Cost Margin in Indian Industries, Working Paper No. 130, Indian
Council For Research On International Economic Relations, New Delhi.
[25] Goldberger, A. S. (1991), A Course in Econometrics, Harvard
University Press, Cambridge.
[26] Gopinath, S (2007), Overseas Investment by Indian Companies -
Evolution of Policy and Trends, RBI Bulletin, 54(2), pp. 235-342.
[27] Gujarati, D. N. and Sangeeta (2007), Basic Econometrics, Tata McGraw
Hill Publication, New Delhi.
[28] Hannah, L. (1983): The Rise of the Corporate Economy, Cambridge
University Press, Cambridge.
[29] Harberger, A. (1954), Monopoly and Resource Allocation, American
Economic Review, 44(2), pp. 77-87.
[30] Hausman, J. A, (1978), Specification Tests in Econometrics,
Econometrica, 46(6), pp.1251-1271.
[31] Kambhampati, U. S. (1996), Industrial Concentration and Performance;
A Study of the Structure, Conduct and Performance of Indian Industry,
Oxford University Press, New Delhi.
[32] Khanna, S. (1997), Industrial Deregulation and Corporate
Restructuring: Understanding India's First Merger Wave, Mimeo,
Indian Institute of Management, Calcutta.
[33] Krueger, A. O. (1974), The Political Economy of Rent Seeking
Behaviour, American Economic Review, 64(3), pp. 291-303.
[34] Kumar, N. (2000), Mergers and Acquisitions by MNEs: Patterns and
Implications, Economic and Political Weekly, 35(32), pp. 2851-2858
[35] Levin, D. (1990), Horizontal Mergers: The 50-Percent Benchmark,
American Economic Review, 80(5), pp. 1238-45.
[36] Mantravadi, P. and A. V. Reddy (2008), Post-Merger Performance of
Acquiring Firms from Different Industries in India, International
Research Journal of Finance and Economics, 22, pp. 193-204.
[37] Mishra, P. (2005), Mergers and Acquisitions in the Indian Corporate
Sector in the Post-Liberalization Era: An Analysis, Unpublished Ph.D.
Thesis, Vidyasagar University, West Bengal.
[38] Mishra, P. (2006), Mergers Acquisition Market Structure and Industry
Performance: Experience of Indian Pharmaceutical Industry, Review of
Development and Change, 11(2), pp. 135-164.
[39] Mishra, P. and T. Chandra (2010), Mergers, Acquisitions and Firms-
Performance: Experience of Indian Pharmaceutical Industry, Eurasian
Journal of Business and Economics, 3(5), pp. 111-126.
[40] Mitchell, M. L. and J. H. Mulherin, (1996), The Impact of Industry
Shocks on Takeover and Restructuring Activity, Journal of Financial
Economics, 41(2), pp. 193-229.
[41] Nayyar, D. (2007), The Internationalization of Firms from India:
Investments, Mergers and Acquisitions, SLPTMD WP No. 004,
Department of International Development, QEH, University of Oxford.
[42] Nelson, R. L. (1959), Merger Movements in American Industry, 1895-
1956, Princeton University Press, Princeton.
[43] Posner, R. A. (1975), The Social Costs of Monopoly and Regulation,
Journal of Political Economy, 83(4), pp. 807-827.
[44] Porter, M. E. (1985): The Competitive Advantage, The Free Press, New
York.
[45] Pratten, C. F. (1971), Economies of Scale in Manufacturing Industry,
Cambridge University Press, Cambridge.
[46] Roy, M. (1999), "Mergers and Takeovers: The Indian Scene during the
Nineties" in A. K. Bagchi (Eds.), Economy and Organization- Indian
Institutions under Neo Liberalized Regime, Sage Publications, New
Delhi.
[47] Saha, B. (2001), Investment Policy in India, Paper Presented in a
Seminar Organized by CUTS Centre for International Trade, Economics
and Environment, Jaipur, India.
[48] Scherer, F. M., A. Beckensten, E. Kaufer, and R. D. Murphy (1975), The
Economics of Multi-plant Operation: An International Comparisons Study,
Harvard University Press, Cambridge.
[49] Steiner, P. O. (1975), Mergers, Motives, Effects and Policies, University
of Michigan Press, Ann Arbor, MI.
[50] Shelton, L. M. (1988), Strategic Business Fits and Corporate
Acquisitions: Empirical Evidence, Strategic Management Journal, 9(3),
pp. 279-287.
[51] Stigler, G. J. (1950), Monopoly and Oligopoly by Merger, American
Economic Review, Papers and Proceedings, 42(2), pp. 23-34.
[52] Venkiteswaran, N. (1997), Restructuring of Corporate India: The
Emerging Scenario, Vikalpa, 22(3), pp. 3-13.
[53] White, H. (1980), A Heteroscedasticity Consistent Covariance Matrix
Estimator and a Direct Test of Heteroscedasticity, Econometrica, 48 (4),
pp. 817-818
[54] Willner, J. (1989), Price Leadership and Welfare Losses in U.S.
Manufacturing: Comment, American Economic Review, 79, pp., 604-
609.
[1] Agarwal, M. (2002), Analyses of Mergers in India, M. Phil Dissertation,
University of Delhi, Delhi.
[2] Agarwal, M. and A. Bhattacharya (2006), Mergers in India: A Response
to Regulatory Shocks, Emerging Markets Finance and Trade, 42(3), pp.
46-65.
[3] Banerjee, A. and E. W. Eckard (1998), Are Mega-Mergers
Anticompetitive? Evidence from the First Great Merger Wave, RAND
Journal of Economics, 29(4), pp. 803-827.
[4] Basant, R. (2000), Corporate Response to Economic Reforms, Economic
and Political Weekly, 35(10), pp. 813-822.
[5] Beena, P. L. (1998), Merger and Amalgamations: An Analysis of the
Changing Structure of Indian Oligopoly, Dissertation, Centre for
Economic Studies and Planning, JNU, New Delhi.
[6] Beena, P. L. (2000), An Analysis of Mergers in the Private Corporate
Sector, Working Paper No. 301, Centre for Development Studies,
Kerala.
[7] Beena, P. L. (2004), Towards Understanding the Merger Wave in the
Indian Corporate Sector - A Comparative Perspective, Working Paper
No. 355, Centre for Development Studies, Kerala.
[8] Beena, P. L. (2008), Trends and Perspectives on Corporate Mergers in
Contemporary India, Economic and Political Weekly, 43(39), pp. 48-56.
[9] Beeslay, M. E. (1973): "Mergers and Economic Welfare," in Mergers,
Takeovers and the Structure of Industry: Ten Papers on Economics,
Law, Rules, The Institute of Economic Affairs, London.
[10] Breusch ,T. S. and A. R. Pagan (1980), The Lagrange Multiplier Test
and its Applications to Model Specifications in Econometrics, Review of
Economic Studies, 47(1), pp. 239-253.
[11] Chandrasekhar, C. P. (1999), "Firms, Markets and the State: An
Analysis of Indian Oligopoly", in A. K. Bagchi (Eds.), Economy and
Organization- Indian Institutions under Neo Liberalized Regime, Sage
Publications, New Delhi.
[12] Chatterjee, S. (1986), Types of Synergy and Economic Value: The
Impact of Acquisitions on Merging and Rival Firms, Strategic
Management Journal, 7(2), pp. 119-139.
[13] Chen, C. and C. Findlay (2003), A Review of Cross-border Mergers and
Acquisitions in APEC, Asia-Pacific Economic Literature, 17(2), pp. 14-
38.
[14] Cowling, K. and D. C. Mueller (1978), The Social Costs of Monopoly
Power, Economic Journal, 88(352), pp. 724-748.
[15] Cowling, K. and D. Mueller (1981), The Social Costs of Monopoly
Revisited, Economic Journal, 91(363), pp., 721-725.
[16] Church, J. and R. Ware (2000), Industrial Organization: A Strategic
Approach, Irwin McGraw-Hill, Boston.
[17] Das, N. (2000), A Study of the Corporate Restructuring of Indian
Industries in the Post-New Industrial Policy Regime - The Issue of
Amalgamations/Mergers, Unpublished Ph.D. thesis Submitted to
University of Calcutta, Calcutta.
[18] Dasgupta, P. (2004), Establishing an Effective Competition Policy
System: the Challenges Facing India in Implementing its New
Competition Law, presentation made at the WTO/UNESCO/ASCI
Regional Seminar for Asia and Pacific Economies on Competition
Policy, Development and the Multilateral Trading System, Hyderabad,
India, 6-8 October.
[19] De Guevara, J. Fern├índez, J. Maudos, and F. Pérez, (2005), Market
Power in European Banking, Journal of Financial Services Research,
27(2), pp. 109-138.
[20] Dixit, A. and N. Stem (1982), Oligopoly and Welfare: A Unified
Presentation with Application to Trade and Welfare, European
Economic Review, 19(1), pp., 123-143.
[21] Ghose, A. (1975), Concentration and Controls in the Indian Industry,
Journal of Industrial Economics, 23(3), pp. 203-22.
[22] Gisser, M., (1986), Price Leadership and Welfare Losses in U.S.
Manufacturing, American Economic Review, 76(4), pp., 756-767.
[23] Gisser, M., (1989), Price Leadership and Welfare Losses in U.S.
Manufacturing: Reply, American Economic Review, 79, pp., 610-613.
[24] Goldar, B. and S. C. Aggarwal (2004): Trade Liberalization and Price-
Cost Margin in Indian Industries, Working Paper No. 130, Indian
Council For Research On International Economic Relations, New Delhi.
[25] Goldberger, A. S. (1991), A Course in Econometrics, Harvard
University Press, Cambridge.
[26] Gopinath, S (2007), Overseas Investment by Indian Companies -
Evolution of Policy and Trends, RBI Bulletin, 54(2), pp. 235-342.
[27] Gujarati, D. N. and Sangeeta (2007), Basic Econometrics, Tata McGraw
Hill Publication, New Delhi.
[28] Hannah, L. (1983): The Rise of the Corporate Economy, Cambridge
University Press, Cambridge.
[29] Harberger, A. (1954), Monopoly and Resource Allocation, American
Economic Review, 44(2), pp. 77-87.
[30] Hausman, J. A, (1978), Specification Tests in Econometrics,
Econometrica, 46(6), pp.1251-1271.
[31] Kambhampati, U. S. (1996), Industrial Concentration and Performance;
A Study of the Structure, Conduct and Performance of Indian Industry,
Oxford University Press, New Delhi.
[32] Khanna, S. (1997), Industrial Deregulation and Corporate
Restructuring: Understanding India's First Merger Wave, Mimeo,
Indian Institute of Management, Calcutta.
[33] Krueger, A. O. (1974), The Political Economy of Rent Seeking
Behaviour, American Economic Review, 64(3), pp. 291-303.
[34] Kumar, N. (2000), Mergers and Acquisitions by MNEs: Patterns and
Implications, Economic and Political Weekly, 35(32), pp. 2851-2858
[35] Levin, D. (1990), Horizontal Mergers: The 50-Percent Benchmark,
American Economic Review, 80(5), pp. 1238-45.
[36] Mantravadi, P. and A. V. Reddy (2008), Post-Merger Performance of
Acquiring Firms from Different Industries in India, International
Research Journal of Finance and Economics, 22, pp. 193-204.
[37] Mishra, P. (2005), Mergers and Acquisitions in the Indian Corporate
Sector in the Post-Liberalization Era: An Analysis, Unpublished Ph.D.
Thesis, Vidyasagar University, West Bengal.
[38] Mishra, P. (2006), Mergers Acquisition Market Structure and Industry
Performance: Experience of Indian Pharmaceutical Industry, Review of
Development and Change, 11(2), pp. 135-164.
[39] Mishra, P. and T. Chandra (2010), Mergers, Acquisitions and Firms-
Performance: Experience of Indian Pharmaceutical Industry, Eurasian
Journal of Business and Economics, 3(5), pp. 111-126.
[40] Mitchell, M. L. and J. H. Mulherin, (1996), The Impact of Industry
Shocks on Takeover and Restructuring Activity, Journal of Financial
Economics, 41(2), pp. 193-229.
[41] Nayyar, D. (2007), The Internationalization of Firms from India:
Investments, Mergers and Acquisitions, SLPTMD WP No. 004,
Department of International Development, QEH, University of Oxford.
[42] Nelson, R. L. (1959), Merger Movements in American Industry, 1895-
1956, Princeton University Press, Princeton.
[43] Posner, R. A. (1975), The Social Costs of Monopoly and Regulation,
Journal of Political Economy, 83(4), pp. 807-827.
[44] Porter, M. E. (1985): The Competitive Advantage, The Free Press, New
York.
[45] Pratten, C. F. (1971), Economies of Scale in Manufacturing Industry,
Cambridge University Press, Cambridge.
[46] Roy, M. (1999), "Mergers and Takeovers: The Indian Scene during the
Nineties" in A. K. Bagchi (Eds.), Economy and Organization- Indian
Institutions under Neo Liberalized Regime, Sage Publications, New
Delhi.
[47] Saha, B. (2001), Investment Policy in India, Paper Presented in a
Seminar Organized by CUTS Centre for International Trade, Economics
and Environment, Jaipur, India.
[48] Scherer, F. M., A. Beckensten, E. Kaufer, and R. D. Murphy (1975), The
Economics of Multi-plant Operation: An International Comparisons Study,
Harvard University Press, Cambridge.
[49] Steiner, P. O. (1975), Mergers, Motives, Effects and Policies, University
of Michigan Press, Ann Arbor, MI.
[50] Shelton, L. M. (1988), Strategic Business Fits and Corporate
Acquisitions: Empirical Evidence, Strategic Management Journal, 9(3),
pp. 279-287.
[51] Stigler, G. J. (1950), Monopoly and Oligopoly by Merger, American
Economic Review, Papers and Proceedings, 42(2), pp. 23-34.
[52] Venkiteswaran, N. (1997), Restructuring of Corporate India: The
Emerging Scenario, Vikalpa, 22(3), pp. 3-13.
[53] White, H. (1980), A Heteroscedasticity Consistent Covariance Matrix
Estimator and a Direct Test of Heteroscedasticity, Econometrica, 48 (4),
pp. 817-818
[54] Willner, J. (1989), Price Leadership and Welfare Losses in U.S.
Manufacturing: Comment, American Economic Review, 79, pp., 604-
609.
@article{"International Journal of Business, Human and Social Sciences:64461", author = "Pulak Mishra and P V Kiran Kumar", title = "Impact of Mergers and Acquisitions on Consumers- Welfare: Experience of Indian Manufacturing Sector", abstract = "In the context of introduction of deregulatory policy measures and subsequent wave of mergers and acquisitions (M&A) in Indian corporate sector since 1991, the present paper attempts to examine the welfare implications of this wave. It is found that M&A do not have any significant impact on consumers- welfare. Instead, consumers- welfare is significantly influenced by exports intensity, imports intensity, advertising intensity, technology related efforts, and past profitability of the firms. While the industries with higher exports orientation or greater product differentiation or better financial performance experience greater loss in consumers- welfare, it is less in the industries with greater competition from imports or better technology. Hence, the wave of M&A in Indian manufacturing sector in the post-liberalization era may not be a matter of serious concern from consumers- welfare point of view. Instead, in many cases, M&A can help the firms in consolidating their business and enhancing competitiveness, and this may benefit the consumers in the form of greater efficiency and lower prices.
", keywords = "Mergers, acquisitions, concentration, welfare, IndiaJEL CodesÔÇöL1, L2, L4, L5", volume = "5", number = "8", pages = "1099-11", }
