۱- Introduction

۲- Literature review

۳- Research questions and hypotheses

۴- Data and methodology

۵- Results

۶- Conclusion

References

Abstract

Stock exchange mergers can lead to increased efficiency; however, increasing levels of concentration can potentially lead to the exercise of market power. We investigate the market power repercussions of stock exchange mergers and find that the industry’s concentration levels have not significantly increased and the concentration levels do not influence exchanges’ profitability in the post-merger period. The profitability of the merging exchanges in the post-merger period is largely influenced by efficiencies in revenue generation and cost management. The absence of evidence that stock exchange mergers lead to the exercise of market power suggests that there does not appear to be an immediate need for regulatory agencies to be overly concerned about mergers among stock exchanges leading to the exploitation of market power to the detriment of consumer welfare.

Introduction

Financial markets have witnessed a wave of mergers among leading stock exchanges involving the NYSE, Euronext, Nasdaq, London Stock Exchange (LSE), and Deutsche Boerse, among others. Stock exchange mergers and acquisitions continue to gain prominence largely because of the expected gains from these combinations. Although there are several sources of gains that can emanate from mergers and acquisitions,1 efficiency gains and market power gains are two of the most important sources of gains widely discussed in the extant literature (e.g., White, 1987; Bhattacharyya and Nain, 2011; Devos et al., 2016). Whereas efficiency gains are positively perceived because of the possibility that improvements in efficiency can lead to lower prices, gains resulting from market power are regarded in a negative light because they lessen competition and can lead to restricted output, higher prices, and consequently allocative inefficiency (De Loecker and Eeckhout, 2018). The conventional expectation is that mergers and acquisitions, especially horizontal mergers among a subset of firms in the same market, may reduce competition and increase market concentration (Levin, 1990; Bhattacharyya and Nain, 2011; Bernile and Lyandres, 2019).