The competitive effects of horizontal mergers in the hospital industry: a closer look

Woolley (1989) attempted to analyze the competitive impact of horizontal hospital mergers using the 'event study' method. Woolley characterized his results as consistent with traditional 'oligopoly' theories of market behavior. We scrutinize in detail a large number of his events, however, and find that most either generated concentration increases too small to plausibly produce market power, or could not have conferred monopoly returns on firms improperly characterized as rivals. Accordingly, any observed abnormal returns are likely attributable to some other cause; we suggest some alternative interpretations of his results. Our paper highlights the need for care in the selection of events and the identification of rivals when applying the event study method to the analysis of mergers.