Evaluating the Effects of Horizontal Mergers in the Korean Mobile Telecommunications Market

Abstract

This paper attempts to analyze the competitive implications of horizontal mergers that happened in the Korean mobile telecommunications market. A big increase in the concentration index after the mergers and acquisitions is often interpreted as evidence that competition in the Korean mobile telecommunications market has decreased. This paper, first, points out that such an interpretation is not necessarily correct and more competition may lead to higher HHI, so caution should be taken before one concludes that the Korean mobile market has become less competitive simply because the HHI index has increased. This paper also shows that the increase in the concentration can be associated with increases in welfare, so that one should not presume that concentration and market performance moved in opposite directions in the Korean mobile market. Since traditional merger analysis of using the Hirfindahl Index is misleading, we need to measure consumer surplus to correctly assess the effects of the mergers and acquisitions. We find that although the market concentration, as measured by the Hirfindahl index increased 59.6 percent after the mergers and acquisitions, the change in the consumer surplus was rather small. Estimates show that it is during the introduction of competition which shows significant changes in the consumer surplus rather than during the mergers and acquisitions. The adverse effects of mergers and acquisitions on consumer surplus, if any, were not as strong as the HHI index may imply.