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 } jJ ft jJ 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
rJ 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