The effect of mergers on equilibrium prices: evidence from Israeli provident funds

Abstract

I study the effect of a medium-size merger between two Israeli financial intermediaries, Meitav and Dash, in 2012. Using a nested logit structure of demand, I model the behavior of agents in the provident fund market, estimating weak substitution patterns between firms and fund specializations. I provide ex ante theoretical predictions regarding post-merger price increase on the scale of 2%-4% for the merging firms, with practically no effect for competitors. Incorporating moderate efficiency gains, the model predicts price drops of about 10%-12%, which are consistent with results from ex post difference-in-differences estimation.