Are mergers and acquisitions beneficial to consumers? Evidence from the property-liability insurance industry

Abstract

We examine price changes associated with mergers and acquisitions (M&As) in the U.S. property-liability insurance industry. We classify M&As into intrastate M&As, where the acquirer and the target previously operated in the same local market, and interstate M&As, where the acquirer and the target operated in different local markets. We show that insurance prices of acquiring firms decrease following interstate M&As, whereas there is no significant effect of M&As on price changes in intrastate consolidation. Using an interaction term between interstate M&A indicators and acquirers’ efficiency, we find evidence to suggest that acquirers’ efficiency can explain the price decrease in interstate M&As. It appears that acquirers’ efficiency can be passed on to consumers, and interstate M&As have a beneficial effect on consumers in the form of reduced prices.