Estimating Endogenous Coalitional Mergers: Merger Costs and Assortativeness of Size and Specialization

TL;DR

This paper develops a structural empirical model to analyze how subsidy policies influence endogenous mergers among shipping firms in Japan, revealing potential cost savings and effects on industry structure.

Contribution

It introduces a novel model of endogenous mergers with complementarities, applied to real-world data, to quantify merger costs and policy impacts.

Findings

Unmatched firms help recover merger costs

Technological diversification varies by carrier and firm type

20% of subsidy expenditures could be saved

Abstract

I present a structural empirical model of a one-sided one-to-many matching with complementarities to quantify the effect of subsidy design on endogenous merger matching. I investigate shipping mergers and consolidations in Japan in 1964. At the time, 95 firms formed six large groups. I find that the existence of unmatched firms enables us to recover merger costs, and the importance of technological diversification varies across carrier and firm types. The counterfactual simulations show that 20 \% of government subsidy expenditures could have been cut. The government could have possibly changed the equilibrium number of groups to between one and six.