Killing competition – cartel expansion through acquisitions

What the paper says

Purpose This paper examines how the Brazilian ready-mix concrete cartel expanded through mergers and acquisitions. Specifically, we investigate whether cartel firms strategically acquired non-aligned competitors to optimize market dominance, eliminate competition and sustain collusive behavior. Design/methodology/approach Using employment and acquisition data from 2004 to 2007, we analyze the post-acquisition activity of cartel-affiliated firms. We employ a triple difference estimator following Cunningham, Ederer, and Ma (2021) and implement the Callaway and Sant’Anna (2021) difference-in-differences (DiD) methodology to assess the impact of these acquisitions on both acquired and acquiring firms. Findings Our findings reveal that cartel firms target larger companies in high-demand markets and acquisitions involving overlapping operations are more likely to result in the closure of the acquiring firm rather than the acquired firm – a phenomenon we term a “reverse killer acquisition.” Conservative estimates indicate that 4.7% to 5.3% of cartel-driven acquisitions result in plant closures for the acquiring firm. These results suggest that the cartel used acquisitions as a mechanism to eliminate competition and reinforce its structure, ensuring the long-term stability of collusion. Originality/value This study contributes to the literature on anti-competitive mergers by documenting how cartels use acquisitions to consolidate market power in a downstream industry. Additionally, it extends the “killer acquisitions” framework by demonstrating a unique mechanism in which the acquiring firm, rather than the acquired firm, is shut down to strengthen cartel coordination.