Merger Efficiency Gains: Evidence from a Large Transport Merger in France

By Ariane Charpin and Joanna Piechucka

Many industries are seeing an increase in market concentration, leading to a discussion on the effectiveness of horizontal merger enforcement. This is fueling a growing interest in retrospective analyses of mergers. While there are a substantial number of studies estimating the price effects of large and/or controversial mergers, there is little evidence on the effects of mergers on cost efficiencies. At the same time, efficiency gains are often one of the main arguments of merging parties in front of competition authorities and constitute, in theory, a central aspect to the economic motivation behind mergers. They constitute the primary justification as to why the merger of competitors may benefit consumers.

BCCP Fellow Joanna Piechucka and co-author Ariane Charpin respond to the gap identified in the literature by performing a retrospective analysis of a large and highly debated merger that took place in the French urban public transport industry. Specifically, they assess whether the consummated merger between two major transport groups, Veolia Transport and Transdev, in 2011 gave rise to merger efficiency gains.

The key challenge of performing a retrospective analysis is establishing a counterfactual that reflects, as closely as possible, how the market outcomes of transport networks affected by the merger would have evolved absent the merger. The authors exploit the industry setting to employ a difference-in-differences methodology evaluating the effect of the merger. They compare the evolutions of operating costs of networks operated by the merged companies (“treated” group) with similar networks operated by competing companies (“control” group).

Their results suggest an absence of efficiency gains attributable to the merger. Their study relies on the use of several control groups in order to control for the possibility that the networks operated by competitors of the merging parties have reacted to the merger and is robust to a great number of robustness checks. Their conclusion does not change even when considering the heterogeneity in the effect depending on identity of the merging party, the contract type in place or the closeness of competition between local operators. 

Overall, their study contributes to a growing number of case studies undertaken by economists that can help determine whether horizontal merger policy is being properly enforced.

The full paper "Merger Efficiency Gains: Evidence from a Large Transport Merger in France" is available as DIW Discussion Paper No. 1843.