Collusion and Efficiency in Horizontal Mergers: Evidence from Geographic Overlap

We explore the sources of gains in horizontal mergers by exploiting heterogeneity between the merging firms’ geographic footprints. We calculate the geographic overlap between the bidder, target, and their rivals and customers to identify variation in the competitive impact of horizontal mergers. We document significantly positive rival reactions and negative customer reactions when the bidder and target operate in similar geographic regions, consistent with anticompetitive effects in these deals. We also exploit staggered changes in the political affiliation of state Attorneys General (AGs) to identify variation in local antitrust enforcement. We show that bidders avoid concentrating mergers when they operate in a high proportion of states with Democratic AGs, and Democratic AGs moderate the effects of concentrating mergers on local rivals and customers. Our evidence supports the argument that geographically-concentrating horizontal mergers are more likely to be anticompetitive. We also document a significant role of state-level AGs in the M&A regulatory process.