Effects of Domestic Merger on Exports: Case Study of the 1998 Korean Automobiles Second ATE Symposium 16 December 2014 Hiroshi Ohashi U Tokyo (Joint with Yuta Toyama, Northwestern U) 1 Motivation • Take a merger case from the Korean auto market to evaluate the effect of merger when exports are a characteristic of the market. • Efficiency (along with market power) is an important consideration for both merging companies and competition authority. 2 Literature Review 1. Ex-post merger analyses: • Many focus on anticompetitive effects. • Several papers evaluates efficiency gains and welfare consequences. • Jeziorski (2014) on US radios, Stahl (2014) on US TV’s, Benkard, Bodoh-Creed, and Lazarev (2010) on US airlines 2. The literature focused primarily on domestic mergers. Little empirical work has been done in the context of cross-border transactions. • In theory, there is a discussion on interactions between merger policies (or competition policies more broadly) and international trade policies. • This paper attempts to fill the gap in the literature using the Korean auto merger in 1998. 3 Hyundai-Kia Merger of 1998 • Kia went bankrupt in Asian Crisis of 1997. • In July 1998, the gov’t and creditor banks offered a public bidding for selling Kia: Hyundai, Samsung, Daewoo and Ford participated. – Hyundai won at the 3rd round, securing 51% of Kia (and its affiliated companies) by paying 1.18 trillion won. – The contract demanded that Hyundai not only carried Kia’s debt, but also remained open the Kwangju plant during the next 15 years with the current level of employment until 2000. • The merged Hyundai and Kia group had the sum of over 60% of domestic market share. • KFTC approved the merger, under the ground that, even though it had an anticompetitive concern, the merger was expected to “rationalize the industry and enhance international competitiveness.” – KFTC had “Industrial policy” concerns in the merger regulations. • It was not easy to see who would be a winner --- can be regarded 4 as an exogenous event. Indication of Market Power Million KW 17 Domestic Prices Merged (Hyundai-Kia) 15 13 11 Non-Merged 9 7 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 5 Some evidence on efficiency Domestic Sales (10000 Units) 100 200 Merging party 80 140 60 120 50 100 Non-merging firms 80 Non-merging firms 60 20 40 10 20 40 20 0 1996 1998 2000 2002 2004 2006 2008 0 1996 1998 2000 2002 2004 2006 2008 Production (10000 Units) 300 Merging party 250 200 150 Non-merging firms 100 50 6 0 1996 1998 2000 2002 2004 2006 2008 60 80 30 0 120 100 160 70 40 Merging party Real Effective Exchange Rate (Right axis, 2005 = 100) 180 90 Exports (10000 Units) Source of Efficiency: Integrated Platforms • Mong-Gu Chung, the eldest son of the then owner of Hyundai, was appointed chairman and restructure business operations. – The number of R&D centers reduced from 8 to 2 (Numyang for passenger car and Junju for commercial vehicles). – Create Hyundai Mobis to standardize parts and modules across HK. → Number of platforms (combination of underbody and suspension with axle) declined considerably. 7 ref Simple Reduced-form Results • Platform integration has significant effect on export volumes, but little effect on domestic prices. • Why? (1-1) Price Engine displacement size Horsepower Fuel efficiency # of models per platform Constant Number of observations Sample R-squared S.E. 0.053 *** 0.052 *** 0.073 *** 0.008 0.539 *** 973 Domestics and Imports 0.86 Coef 0.959 0.256 -0.399 0.009 -9.534 (1-2) Price S.E. 0.067 *** 0.059 * 0.096 *** 0.007 0.769 *** 555 Domestics 0.86 Coef 1.135 0.103 -0.671 0.010 -9.482 (1-3) Export S.E. Coef -3.389 0.948 *** -1.182 0.868 2.291 1.351 * 0.729 0.084 *** 30.600 10.250 *** 555 Domestics 0.33 8 Structural Approach • Use the data in the pre- and post-merger periods (1996- 09). • No opportunity to conduct controlled experiments on this single merger case. • We thus perform counter-factual analysis by use of structural estimates by the following steps: Step 1: Recover primitives (demand and marginal costs) of economic agents (car makers and consumers). Step 2: Simulate the model to assess economic outcomes where no merger took place. Compare it with the actual. • We treat the Hyundai-Kia merger as an exogenous event. 9 Model Set-up • We incorporate firm’s pricing behavior at the level of auto models, explicitly accounting for exporting behavior. – A firm sells either domestic or export markets, or both. – Car models are product-differentiated; for a given model, homogenous across domestic and overseas markets. – Exogenous characteristics and product selection • Merely a handful of firms dominated the market of Korean autos. – The analysis should account for strategic interactions among firms in their determination of output. • Korea may well be described as a small country in the worldwide market. – Export (import) accounted for 5.6 (0.15)% in the world production during the study period. – Export prices (FOB) are uncorrelated with export volume. 10 Estimation Setup • Demand – Domestic and imported cars – Product differentiated (in auto characteristics; horsepower, engine displacement, size, weight, fuel efficiency & age) – Aggregated random-coefficient discrete choice – Use IVs for endogeneity • Supply – Multi-product Bertrand oligopolistic domestic market – Competitive world market 11 Model Demand j Price MRH Domestic Sales A j MC j Exports B C MRF j D MRF j * Domestic Sales under MRF* Quantity 12 Improved efficiency Price Those already exported Domestic Sales A MC j Exports B MC j ' C’ C MRF j D D’ MRF j E MRF j Sales Those remained unexported under MRF* MRH Sales under MRF* after merger * j * Quantity New exports 13 Increased market power Demand j Price MRH Domestic Sales j MC j Exports A C B’ MRF j D’ Domestic Sales under MRH* MRH *j Quantity 14 ref Demand • Random Coefficient Logit • Household i , Model j, Year t uijt it p jt X it jt ijt ' jt • Demand for Model j q D jt Mt yit # Households sijt dFyt ( yit )dGt ( it ) it Income Distribution sijt exp it p jt X 'jt it jt Jt 1 exp it pkt X kt' it kt k 1 Use Dube, Fox, and Su (Econometrica, 2012) to estimate the model 15 ref Firm Behavior (domestic and import producers) max D E D E [ p q ( P ) MRF q TC ( q ( P ) q jt jt t jt jt jt t jt )] { p jt , q Ejt } jJ ft jJ ft s.t. q Ejt 0, j J ft p jt : Domestic price MRF jt : Export price q Djt : Domestic demand TC jt : Total cost of production q Ejt : Export vol ume J ft : Set of products firm f owns D q q Djt ( prt MCrt ) rt 0, j p jt rJ ft 0 if MC jt MRF jt q , j 0 if MC jt MRF jt E jt 16 Demand Estimates Logit (OLS) Price Price / Income Constant Mean- Size Mean- Horsepower Mean- Fuel efficiency per 1000 KWN Trend Std Dev- Size Std Dev- Horsepower Std Dev- Fuel efficiency per 1000 KWN R-squared First stage F statistics J statistic Number of observations Logit (2SLS) Coef S.E. Coef S.E. -11.61 0.56 *** -21.79 1.42 *** -9.37 22.90 8.51 14.87 -0.03 0.58 2.62 1.55 2.21 0.02 0.50 *** -8.14 0.64 *** *** 20.36 3.14 *** *** 26.90 2.98 *** *** 6.45 2.39 *** * -0.09 0.02 *** 0.36 48.72*** 62.24*** 973 Random Coefficient Logit Coef S.E. -84.43 18.68 *** -5.62 2.09 *** 25.05 12.50 ** 20.69 22.94 1.08 8.71 -0.96 1.35 1.59 405.50 4.89 28.56 0.18 389.21 69.09*** 17 Demand Elasticities, 2001 1. High own price elasticities 2. Low cross-price elasticities especially between HK and others (including imports) 3. Cross elasticities are higher for larger sized cars. H-K Small Medium Large Numbers of models Own elasticities 6 -2.87 -3.49 -4.94 10 9 Small 0.018 0.084 0.053 H-K Medium 0.016 0.099 0.087 Large 0.011 0.094 0.133 Cross elasticities Other Domestic Small Medium Large 0.016 0.018 0.011 0.072 0.101 0.093 0.042 0.082 0.129 Imports Medium Large 0.006 0.004 0.063 0.056 0.100 0.179 ③ Other Domestic Small Medium Large 7 -1.60 -2.78 -5.03 0.026 0.063 0.042 0.020 0.074 0.066 0.011 0.072 0.096 0.025 0.052 0.034 0.022 0.073 0.062 0.012 0.069 0.087 0.007 0.041 0.074 0.004 0.040 0.098 4 Imports Medium Large 3 33 -5.82 -7.24 0.001 0.001 0.001 0.002 0.002 0.009 0.001 0.001 0.001 0.002 0.002 0.006 0.003 0.008 0.003 0.020 2 ① ② 18 Cost Estimates ln(MC jt ) Q ln(q jt ) Wjt' W S platform jt t j jt q jt q Djt q Ejt : production volume t : year effect, j : model - fixed effect Controlling for endogeneity in q jt jt-1 et: AR(1) error (4-1) OLS Production volume Engine displacement Horsepower Fuel efficiency # of car models sharing the same platform Hyundai-Kia after merger dummy ρ AR(2) test Hansen test Nonlinear restriction test Correlation coefficient Number of observations Coef -0.024 1.514 -0.002 -0.610 -0.043 0.879 S.E. 0.022 0.325 *** 0.217 0.246 ** 0.018 ** 0.048 *** 13.5** 0.936 436 (4-2) Within S.E. Coef -0.015 0.030 0.866 0.296 *** 0.175 0.232 -0.700 0.232 *** -0.051 0.027 * 0.260 0.038 *** 1.45 0.933 436 (4-3) GMM-DIF S.E. Coef 0.009 0.066 0.510 0.286 * 0.212 0.196 -0.818 0.222 *** -0.033 0.019 * -0.613 0.158 *** -2.34** 10.87 2.63 0.933 334 (4-4) GMM-SYS S.E. Coef 0.065 0.034 * 0.983 0.339 *** 0.229 0.172 -0.195 0.270 -0.060 0.022 *** 0.998 0.059 *** -0.76 14.73 8.31 0.934 436 (4-5) GMM-SYS S.E. Coef 0.061 0.031 * 0.933 0.304 *** 0.342 0.185 * -0.097 0.261 -0.665 0.951 0.093 *** 0.050 *** -0.90 16.26 9.51* 0.927 436 19 MRF Estimates • Estimated MRF closely correlates with the Korean customs data (w/ Corr. Coef. of 0.91). • The finding is consistent with small-country assumption. (6-1) Censored Tobit S.E. Coef Export volume Engine displacement Horsepower Fuel efficiency Real effective exchange rate Constant Number of observations Number of censored observations Correlation between prediction and data 0.576 0.352 -0.577 0.001 -8.179 0.396 0.236 0.173 *** 0.002 2.731 *** 551 74 0.95 (6-2) Censored Tobit S.E. Coef 0.013 0.009 0.545 0.398 0.341 0.237 -0.521 0.178 *** 0.001 0.002 -8.207 0.011 *** 551 74 0.95 20 Ref Model Fit (Domestic Prices) (1000 Won) 30000 Real: Replication, Dotted:Data 25000 Large 20000 15000 Medium 10000 5000 Mini Small 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 21 Counter-factual Scenario • We assume that Kia survived with assistance of the government. We do not assess, however, the effects of this intervention here. • Under the assumption that the merger did not take place, 1. Hyundai and Kia independently maximize their own respective payoffs. 2. No improvement of efficiency due to the merger. 22 Merger Effects by Size • Many small (and medium) sized models were already exported prior to the merger. • Efficiency gains fully passed-through to exports for small and medium cars, while it reduced domestic prices for larger cars. • They accounted for 70 % of the market. • Platform integration was relatively concentrated on medium sized cars. 23 Merger Effects at Firm Level 24 ref Robustness to Small-Country Assumption With merger Price (1000 KW) Domestic Sales (1000 units) Export Volume (1000 units) Small Medium Large Small Medium Large Small Medium Large 6833 12027 21949 1326 3332 2722 6180 7107 3117 Small-country Assumption No merger Annual Average Change (%) 5259 31% 9954 20% 19485 12% 1894 -31.9% 4490 -25.1% 3434 -20.7% 3048 10.3% 1205 49.0% 696 34.8% Large-country Assumption No merger Annual Average Change (%) 5255 31.3% 9954 20.3% 19505 12.1% 1888 -31.6% 4479 -24.9% 3411 -20.2% 3311 8.7% 1426 39.9% 863 26.1% 25 2% reduction 26 Main Results • Evidence of efficiency gain in the Hyundai-Kia merger (estimated as 6.2 % on average for 10 years after the merger). • Exports quadrupled because of the merger. • Domestic prices increase: 19.0 %. But varies by size. – Small by 31.3%; Medium by 20.3%; and Large 12.3% • Note that small and medium took nearly 70 % of the market. – Efficiency gain passed-through to export volumes for small and medium cars. • Total welfare was found slightly decreased. – CS↓, PS↑ – half of PS ↑ accounts for export profits. – SS reduced, but by mere 2% • If Korea had been less export-oriented, the merger would have been more beneficial to consumers. 27 Some Remarks Regulator Reputation • After the H-K merger, a series of mergers took place in Korean auto market (Renault acquired Samsung in 2000; GM acquired Daewoo in 2002; Ssangyong merged with Shanghai Motors in 2005). • This additional wave of mergers was at least partly due to the perception that the KFTC would be lenient in its merger review. Interaction between competition (more specifically merger) policies and trade liberalization. – Competition policies used for “industrial policies.” – Strict import regulations • Import tariffs of 8 – 10 % – After Asian crisis and IMF bailouts, Korea had to move toward liberalization. 28 Another Motivation (from a Japanese perspective) Too “Many” Firms in an Product Market Japan North America Europe Asia & Others LCD TVs Sony; Sharp; Toshiba; Panasonic; Funai Electric Vizio (U.S.) Philips (Netherlands) Railways Nippon Sharyo; Hitachi, Kawasaki Heavy Industries; Tokyu car corp.; Kinki Sharyo Bombardier (Canada) ALSTOM (France), Siemens (Germany) Hyundai Rotem(ROK) Toshiba (WH), Hitachi, Mitsubishi Heavy Industries GE(U.S.) AREVA(France) Doosan Heavy Industries & Construction (ROK) GE (U.S.), Nalco(U.S.) Veolia (Europe); Siemens (Germany), Suez (France) GE(U.S.) Philips(France) Nuclear Power Water business (Drinking water & sewerage) Diagnostic imaging equipment Toray; Metawater; Ebara; Kubota, others *The number of leading companies is 16 in equipment, 9 in plant construction, and 3 in operation and maintenance management Toshiba Medical systems, Hitachi Medical, Shimadzu; ALOKA Samsung (ROK), LGE(ROK), TCL (China) Thames Water (Australia) - 29 Thank you for your attention ohashi@e.u-tokyo.ac.jp 30 ref What happened after the H-K merger Absorption merger of Hyundai Precision (99.6) Hyundai Precision (91.10) Hyundai Motor (67.12) Kia Industry (62.10) (Kia Motor) Acquision of Asia(76.11) Hyundai-Kia Motor Group Hyundai-Kia merger (99.3) ・Hyundai motor ・Kia motor Absorption merger of Asia (99.6) Asia Motor (65.7) Acquision of Ssangyong (98.1) Acquision of auto department of Daewoo heavy industry (99.3) Acquired by GM (02.10) GM Daewoo (GM Korea) Daewoo Motor (83.1) Daewoo Heavy Industry (94.10) Acquired by Shanghai motor(05.1) Ssangyong Motor Ssangyong Motor ('88.3) Separation from Daewoo (00.4) Samsung Motor (98.2) 1990 RenaultSamsung Motor Acquired by Renault (00.9) 1998 1999 2000 2009 32 Literature Review • A competition authority has to decide whether or not to approve a particular merger (with or without remedies), before the merger takes place. A merger is likely to be prohibited if it deems to substantially lessen competition (SLC). • While some empirical studies focus on M&A’s (in the field of corporate finance, for example), these studies usually provide little practical help as to how to evaluate a particular merger case. • The extant merger literature in the IO has devoted considerable attention to measuring the anticompetitive effect (SLC) of a horizontal merger. And more work begin to examine its efficiency gain from a merger. – Merger waves in Paper and Pulp (Pesendorfer, 2000, RAND) – Cost Synergies in the US radio (Jeriorski, mimeo) among others 33 Motivation • The literature focused primarily on a domestic merger. Little work has been done in the context of open economy. • In the meantime, the number of cross-border mergers is on the rise. • Some theoretical implications to the impact of domestic market structure on export performance. – “Economies” Rationale • – Large domestic operation provides national firms with economies of scale, resulting in improving export performance. “Rivalry” Rationale • Domestic market competition provides national firms with pressure to innovate, leading to the improvement in export performance. • E.g., Clougherty (2002): effects of domestic airline mergers on international efficiency • This paper attempts to fill the gap in the literature in an application to the Korean auto merger in 1998 (Hyundai and Kia). 34 Another Motivation (from a Japanese perspective) Too “Many” Firms in an Product Market Japan North America Europe Asia & Others LCD TVs Sony; Sharp; Toshiba; Panasonic; Funai Electric Vizio (U.S.) Philips (Netherlands) Railways Nippon Sharyo; Hitachi, Kawasaki Heavy Industries; Tokyu car corp.; Kinki Sharyo Bombardier (Canada) ALSTOM (France), Siemens (Germany) Hyundai Rotem(ROK) Toshiba (WH), Hitachi, Mitsubishi Heavy Industries GE(U.S.) AREVA(France) Doosan Heavy Industries & Construction (ROK) GE (U.S.), Nalco(U.S.) Veolia (Europe); Siemens (Germany), Suez (France) GE(U.S.) Philips(France) Nuclear Power Water business (Drinking water & sewerage) Diagnostic imaging equipment Toray; Metawater; Ebara; Kubota, others *The number of leading companies is 16 in equipment, 9 in plant construction, and 3 in operation and maintenance management Toshiba Medical systems, Hitachi Medical, Shimadzu; ALOKA Samsung (ROK), LGE(ROK), TCL (China) Thames Water (Australia) - 35 Main Results • Evidence of efficiency gain in the Hyundai-Kia merger (estimated as 8.7 % on average for 10 years after the merger). • Exports more than doubled because of the merger. • Domestic prices increased by 11.3 %. – Prices of small-sized cars increased 14.5%. – Efficiency gain fully passes-through to export volumes for small and medium cars, while it also reduces domestic prices for larger-sized cars. • Small and medium cars took about 70 % of the Korean market. • Total welfare was found slightly decreased. – CS↓, PS↑ – half of PS ↑ accounts for export profits. – TS reduced, but by mere 2% 36 Hyundai-Kia Merger of 1998 • Kia went bankrupt in Asian Crisis of 1997. • In July 1998, the gov’t and creditor banks offered a public bidding for selling Kia: Hyundai, Samsung, Daewoo and Ford participated. – Ford won at first, but nullified. Hyundai won at the 3rd round, securing 51% of Kia (and its affiliated companies) by paying 1.18 trillion won. – The contract demanded that Hyundai not only carried Kia’s debt, but also remained open the Kwangju plant during the next 15 years with the current level of employment until 2000. – We take the merger event exogenous. • The merged Hyundai and Kia group had the sum of over 60% of domestic market share. • KFTC approved the merger, under the ground that, even though it had an anticompetitive concern, the merger was expected to “rationalize the industry and enhance international competitiveness”. 37 Indication of Market Power Million KW 17 Domestic Prices Merged (Hyundai-Kia) 15 13 11 Non-Merged 9 7 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 38 Some evidence on efficiency Domestic Sales (10000 Units) 100 200 Merging party 80 140 60 120 50 100 Non-merging firms 80 Non-merging firms 60 20 40 10 20 40 20 0 1996 1998 2000 2002 2004 2006 2008 0 1996 1998 2000 2002 2004 2006 2008 Production (10000 Units) 300 Merging party 250 200 150 Non-merging firms 100 50 39 0 1996 1998 2000 2002 2004 2006 2008 60 80 30 0 120 100 160 70 40 Merging party Real Effective Exchange Rate (Right axis, 2005 = 100) 180 90 Exports (10000 Units) Source of Efficiency: Integrated Platform 40 Goal of the Paper • We wish to assess the consequence of the merger, using the data in the pre- and post-merger period (1996- 09). • No opportunity to conduct controlled experiments on this single merger under study. • We therefore perform counter-factual analysis by use of structural estimates. Step 1: Recover primitives (demand and marginal cost) of the economic agents (car makers and consumers). Step 2: Simulate the model to assess economic outcomes where no merger took place. Compare it with the actual. • We treat the Hyundai-Kia merger as an exogenous event. 41 Model Set-up • We incorporate firm’s pricing behavior at the level of auto models, explicitly accounting for exporting behavior. – A firm sells either domestic or export markets, or both. – Car models are product-differentiated; for a given model, homogenous across domestic and overseas markets. – Exogenous characteristics and product selection • Merely a handful of firms dominated the market of Korean autos. – The analysis should account for strategic interactions among firms in their determination of output. • Korea may well be described as a small country in the worldwide market. – Export (import) accounted for 5.6 (0.15)% in the world production during the study period. – Export prices (FOB) are uncorrelated with export volume. 42 Estimation Setup • Demand – Domestic and imported cars – Product differentiated (in auto characteristics; horsepower, engine displacement, size, weight, fuel efficiency & age) – Aggregated random-coefficient discrete choice – Use IVs for endogeneity • Supply – Multi-product Bertrand oligopolistic domestic market – Competitive world market 43 遠山追加済み:Fig 5 Merger Effects at the firm level (1000 KWN) (5-1) Domestic Prices 4500 (1000 units) H-K 4000 200 3000 0 2500 -100 2000 -200 1500 -300 1000 Other firms 500 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 (1000 units) (5-3) Exports (Trillion KWN) 3 1800 H-K (5-4) Welfare Producer Surplus 2 1 1200 1000 0 800 Social Welfare -1 600 400 200 H-K -400 -500 0 1400 Other firms 100 3500 1600 (5-2) Domestic Sales -2 Other firms 0 -200 -3 -4 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Consumer Surplus 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 44 遠山追加済み:Fig 6 Merger Effects on H-K by Engine Size (6-1) Domestic Prices (Small country) (1000 Units) (1000 KW) (6-2) Exports (Small country) 900 3500 Large Medium 3000 2500 Small Medium 800 700 600 2000 500 1500 400 Small 300 1000 200 500 100 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 (6-3) Domestic Prices (Large country) 3000 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 (1000 Units) (1000 KW) 3500 Large 0 (6-4) Exports (Large country) 900 Large 800 Medium 2500 Small Medium 700 600 500 2000 400 1500 Small 300 1000 200 500 100 0 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Large 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 45 遠山数字変更済 Effects on Domestic Prices • The prices of the merged parties increased on average by 19.2%. – Small and medium size were more likely to increase. • Those of the non-merged companies would not have been much affected by the merger. Price Merged party Other domestics All All 19.2% 1.9% 13.8% Small Medium 29.9% 20.8% 2.4% 0.6% 20.0% 16.1% Large 12.6% 0.5% 9.2% 46 遠山数字変更済 Domestic Sales and Export • The merged parties decreased their sales by 24.8%. • In the meantime, their export more than doubled because of the merger. – Efficiency effects are observed greater for those car types that are already exported. Domestic Sales Exports Merged party Other domestics Imports All Merged party Other domestics All All Small Medium -24.8% -30.0% -25.8% 31.2% 19.9% 36.2% 33.6% 33.7% -12.8% -18.7% -12.0% 231.5% 102.7% 489.9% -11.4% -3.7% -15.2% 96.1% 50.7% 144.7% Large -20.7% 31.3% 33.5% -10.3% 348.0% -29.4% 156.2% 47 遠山数字変更済 Main Results • Evidence of efficiency gain in the Hyundai-Kia merger (estimated as 6.2 % on average for 10 years after the merger). • Exports more than doubled because of the merger. • Domestic prices increased by 13.8 %. – Prices of small-sized cars increased 20.0%. – Efficiency gain fully passes-through to export volumes for small and medium cars, while it also reduces domestic prices for larger-sized cars. • Small and medium cars took about 70 % of the Korean market. • Total welfare was found slightly decreased. – CS↓, PS↑ – half of PS ↑ accounts for export profits. – TS reduced, but by mere 2% 48 What we learn from this study • There are cases where SLC and efficiency gains coexist (i.e., do not counteract each other) when we incorporate an export market. – From the social welfare perspective, export performance should be considered in the merger regulation. • Integration of platforms due to merger plays a role in the post-merger performance. – “Economies rational” appears fit better than “rivalry rational” in this application. 49 Thank you for your attention ohashi@e.u-tokyo.ac.jp 50 51 52 Price effects by export status Exported cars without the merger 25% 20% 15% 10% 5% Non-Exported cars without the merger 0% No Synergy With Synergy small No Synergy With Synergy medium No Synergy With Synergy large 53 済 Simulation Results All Merged party 13.54% Other domestics 0.75% Price Imports -0.08% All 4.72% Merged party -19.7% Other domestics 12.9% Domestic Sales Imports 17.6% All Merged party 122.5% Exports Other domestics -6.0% All Consumer Surplus -10.0% Produce surplus (domestic) 5.9% Produce surplus (export) 91.5% Importer's surplus 16.7% Total surplus -0.3% Small Medium 21.61% 14.16% 1.56% 0.74% -0.08% 14.56% 6.43% -23.9% -20.3% 8.9% 14.0% 19.1% -15.4% -11.5% 50.9% 227.2% -1.9% -7.7% 29.1% 102.8% Large 8.69% 0.36% -0.08% 1.99% -16.7% 14.2% 17.3% -9.6% 185.0% -18.2% 110.6% 54 Notes: The merged parties are Hyundai and Kia, and non-merged parties include Daewoo, Ssangyong and Samsung. Price and profits indices are the simple average of the changes of the respective index after 1999. Prices and profits are in terms of 1996 Korean won. Thank you for your attention ohashi@e.u-tokyo.ac.jp 55 56 Hyundai-Kia Merger of 1998 • In the period of 1997-2000, all the automakers but Hyundai run into serious financial crises. • Kia went bankrupt in the summer of 1997, and Samsung, Ssangyong and Daewoo fell into insolvency crises. • In July 1998, the gov’t and creditor banks offered a public bidding for selling out Kia group: Hyundai, Samsung, Daewoo and Ford participated the tender. – Hyundai won at the 3rd round, securing 51% of Kia and Asia Motors by paying 1.18 trillion won. – Samsung and Ford were disqualified as they demanded a write-off of 8 trillion won. – After the write-off of 7.47 trillion won debts, Hyundai carried the remaining debts of 1.93 trillion. The contract also demanded that Hyundai not close the Kwangju plant during the next 15 years and maintain the current level of employment until 2000. • The merged Hyundai and Kia group had the sum of over 60% of domestic market share. 57 Korean Auto Industry Absorption merger of Hyundai Precision (99.6) Hyundai Precision (91.10) Hyundai Motor (67.12) Kia Industry (62.10) (Kia Motor) Acquision of Asia(76.11) Hyundai-Kia Motor Group Hyundai-Kia merger (99.3) ・Hyundai motor ・Kia motor Absorption merger of Asia (99.6) Asia Motor (65.7) Acquision of Ssangyong (98.1) Acquision of auto department of Daewoo heavy industry (99.3) Acquired by GM (02.10) GM Daewoo (GM Korea) Daewoo Motor (83.1) Daewoo Heavy Industry (94.10) Acquired by Shanghai motor(05.1) Ssangyong Motor Ssangyong Motor ('88.3) Separation from Daewoo (00.4) Samsung Motor (98.2) 1990 RenaultSamsung Motor Acquired by Renault (00.9) 1998 1999 2000 2009 Hyundai-Kia Merger of 1998 • The merging Hyundai and Kia would hold more than 60% of the domestic car market, leading to an anticompetitive concern. • KFTC eventually approved the merger, under the ground that, even though it had an anticompetitive concern, the merger was expected to “rationalize the industry and enhance international competitiveness” (Art 7.1, prior to the amendment enacted in Feb 1999). 59 Product Characteristics • Observed characteristics moved in a similar fashion for both the merged and non-merged companies. – Horse power improved, but the other observed characteristics including size and fuel efficiency do not show definite trends. – No indication that the merger itself influenced on the observed characteristics dimensions. • We thus assume exogenous product characteristics including varieties. – However: a possibility that the merger improved consumer perceptions on auto quality • Kim (2008) documents that consumer perception on the qualities of Hyundai and Kia improved after the merger. • Hyundai promoted “quality management” in 1999 to strengthen their system of quality management. – Incorporating endogenous quality however is an easy extention. • The merger do not appear to affect their export prices. 60 Data • All auto models (1996-2009) incl. imports, of annual frequency • Domestic Prices (in catalogs) • Auto characteristics (horsepower; engine displacement; size; weight; fuel efficiency; age) • Domestic Sales and Exports (in units) –No inventory nor costs data –Export prices are only observed at the broad category level (i.e., mini/small, medium, large). 61 Mergers and Acquisitions Worldwide Institute of Mergers, Acquisitions, and Alliances Mergers and Acquisitions in Japan 63 Williamson’s (1968) Trade off Suppose that the competition authority intends to maximize social welfare. 64