| Abstract: |
This paper analyzes the impact of changes in the competitive market structure
on an industry's total factor productivity (TFP) growth. The impact of
horizontal mergers on TFP growth is of particular interest. The number of
proposed horizontal mergers among U.S. firms totaled 28,818 from 1996 to 2005,
while the number of U.S. Department of Justice investigations of proposed
mergers totaled 1,303 during the same time period. The impact of mergers upon
total factor productivity growth is rightly a topic for consideration. Merger
participants routinely claim that mergers will result in welfare improving
efficiency gains. If true, these gains should translate into increased TFP
growth. This paper estimates this effect and others after presenting a model
of TFP growth as a function of changes in the competitive market structure of
an industry, changes in production diversification measured at the
establishment level, and changes in output per establishment and the number of
establishments. Mergers are found to have a positive impact upon TFP growth,
accounting for 0.36 percentage points of total factor productivity growth
between census years. |