A Research On Competitive And Synergistic Effects Of Vertical Mergers

M&A is an important way to realize the scale of enterprises from a small size to a large size,and from weakness to strength.By summing up the practice of merger and acquisition,it can be found that the development process of M&A shows two distinct trends:on one hand,the scale of merger and acquisition is larger,both the size of a single merger and the size of the total merger are increasing.On the other hand,the mode of merger and acquisition tends to become horizontal mergers,vertical mergers and diversified mergers.In the two development trends of M&A,the effects of horizontal mergers have achieved fruitful results,but the vertical mergers’ effects are arguments.On the one hand,vertical merger and acquisition,as an important way to optimize the allocation of resources,plays an important role in improving the core competitiveness of the enterprises,reducing the cost of production,building a complete industrial chain and ensuring the industrial security.The integrated enterprises formed after the merger and acquisition actually control the production channels of key factors of production,thus may use the market blockade strategy to deprive other enterprises’ right obtaining key factors of production,and then block the market and reduce the competition.So what are the effects of vertical mergers and acquisitions in real economy?What is the mechanism behind this effect?Are there any differences between vertical mergers and acquisitions in the markets with different characteristics?Should market competition management authorities regulate vertical mergers and acquisitions?How to regulate?These problems are of great theoretical and practical significance.This study attempts to explore these problems.Specifically,from the analyzing the characteristics of the vertical merger and acquisition in real economy,this study extracts two different vertical mergers and acquisitions,namely vertical mergers and acquisitions under the essentially homogeneous elements,and the vertical merger and acquisition under the mutually complementary elements;on this basis,the theoretical model is built to examine the effects of different types of vertical mergers and acquisitions.The vertical merger and acquisition of two listed companies in Shanghai and Shenzhen are taken as samples to test the economic effect of vertical merger and acquisition.Finally,through combining the theoretical and empirical research results,the regulation strategy of vertical merger and acquisition is suggested.This dissertation does the following researches:(1)Examines the competitive effect,especially the foreclosure effect of the vertical mergers and acquisitions under homogeneous factors of production.After merging into an integrated manufacturers,the competitive advantage is obtained,a lot of enterprises take action of foreclosure,they do not provide production factor to independent manufacturers,while some integrated manufacturers continue to remain in the market of production factor and supply goods to independent manufacturers.Based on this,and on the premise of producing only one homogeneous element in the upstream of the industrial chain,this paper constructs a vertical industrial chain which upstream is composed of several suppliers,and downstream is composed of leading manufacturers and their following manufacturers.Based on the equilibrium results of market competition of production element suppliers and product manufacturers,under the market structure of vertical separation of upstream suppliers and downstream manufacturers,a comparative analysis is conducted when the merger of the downstream leading suppliers and the upstream element suppliers is done to form an integrated comprehensive manufacturer.This merger strategy has an effect on the competition of the upstream element market and the downstream product market.And it is also the conditions for integrated manufacturers to adopt market blockade strategy.(2)Examines the competitive effect and synergistic effect of enterprise’s vertical mergers under mutually complementary elements.In reality,many products are mainly produced by combination of key elements and general elements.Enterprises in different levels of industrial chain are merged with key element suppliers,and the competitors key elements are restricted to obtain key element by them.Some enterprises are also trying to achieve their goals upgrading their core competitive force through merging with general element suppliers.Based on this,a dual industrial chain is constructed,in upper stream of which,two mutually complementary production elements are supplied.The key elements have only one supplier and no substitute,and the general elements are produced by a number of suppliers.Based on the vertical separation of upstream and downstream markets,the effects of different vertical mergers and acquisitions strategy are compared and analyzed through the theoretical model of the upstream and downstream profit negotiations.(3)Empirically examine the competitive effect and synergistic effect of vertical mergers through using the samples of vertical mergers and acquisitions of listed companies in Shanghai and Shenzhen.By using the vertical merger and acquisition events of the listed companies in Shanghai and Shenzhen in 2013-2015 years as a sample,this study scientifically selects the factors that affect the performance of the enterprise,establishes a double differential regression model,analyzes the comprehensive effect of vertical merger and acquisition,and further analyzes the synergy effect of M&A by using the dual difference model in order to prove functional mechanism of the vertical mergers.Finally,the PSM-DID is used to verify the robustness of the results.Based on the above studies,the major findings are following:(1)The conditions for the emergence of market blockade effect,and the relationship between market blockade and market competition.In the case of homogenous elements,when product manufacturers and element suppliers are vertically integrated into comprehensive manufacturers,whether they adopt market blocking strategy depends on the threshold value of market blocking effect and the market competition environment faced by such integrated manufacturers.When the competition among comprehensive manufacturers is not fierce and the number of comprehensive manufacturers is below the threshold value,the comprehensive manufacturers adopt the market blocking strategy to gain more profits by increasing the cost of competitors and squeezing the market share of competitors.When the competition among comprehensive manufacturers is fierce,and the number of comprehensive manufacturers exceeds the threshold value,the comprehensive manufacturers will not adopt the market blocking strategy.Instead,it will enter into production element market for trading,and gain more profits through taking part in production element market trading.The threshold value of market blockade effect depends on the market structure of the industrial chain.The more the number of upstream element suppliers in the industrial chain and the number of downstream product manufacturers are,the higher the threshold value is,that is to say,more market blockade manufacturers can be accommodated in such a market environment.(2)Under the mutually complementary elements,there are differences in the synergistic effect and external spillover effect produced from mergering with different element suppliers.The vertical M&A of key element suppliers and product manufacturers has positive synergies and external spillovers,that is to say,compared with the vertical separation,the profit level of key element suppliers and product manufacturers participating in M&A increases,and the profit level of general element suppliers not participating in M&A also increases.When vertical M&A happens between general element suppliers and product manufacturers,it produces positive synergies,that is to say,it promotes the growth of profit level of general element suppliers and product manufacturers involved in M&A.There is a great difference in the external spillover effect caused by vertical mergers between general element suppliers and product manufacturers.When a group of general element suppliers merge with product manufacturers,it promotes the increase of profit level of key element suppliers,that is,positive spillover effect is produced.However,it reduces the profit level of independent general element suppliers and independent product manufacturers,which results in negative spillover effect.After all general element suppliers are vertically merged with the product manufacturers,it produces an external spillover effect which is not in favor of the key element suppliers.(3)Different vertical M&A modes have different synergies.The nature of synergistic effect of vertical M&A under homogeneous elements depends on the market competition environment.When the competition between comprehensive manufacturers is not fierce,vertical M&A produces positive synergistic effect,but negative synergistic effect occurs when comprehensive manufacturers compete fiercely.Under the mutually complementary elements,vertical M&A has positive synergies.(4)Vertical M&A’s influence on enterprises’ business performance is dynamic and changeable.DID method is introduced into the empirical analysis of the vertical M&A effect.It is found that the vertical M&A promotes the rise of enterprise business performance,but the impact of vertical M&A on enterprise business performance has a dynamic effect.Taking the year before M&A as the base period,the annual impact on enterprise performance after M&A changes with different year.This dissertation enriches the theoretical research of vertical M&A.On the other hand,it provides an analytical model for the anti-monopoly practice of vertical M&A,and it is also of certain guiding significance for the decision-making of enterprises’ vertical M&A practice.From the aspect of anti-monopoly,anti-monopoly authorities should decide whether they should restrict vertical M&A according to the market competition situation,and they should not intervene too much in the fiercely competitive market.From the perspective of merger and acquisition decision,there will be differences in the synergies generated by selecting different objects of merger and acquisition,and the objects of vertical M&A which is conducive to the increase of core competition force of the enterprise should be chosen.The market structure of the industry of the M&A enterprise is also one of the factors influencing the decision-making of M&A.