Evaluating Mergers and Divestitures : A Casino Case Study

This paper contributes to a sparse literature on merger remedies amid renewed interest in assessing remedy effectiveness by global antitrust policy agencies. Despite frequent use in practice, merger remedies receive little attention in the economics literature. We address this deficiency by analyzing the 2013 merger of two casino operators, Pinnacle and Ameristar, and the subsequent divestiture of one of Pinnacle's St. Louis casinos. Using public casino-game-month price and quantity data from the Missouri Gaming Commission web site, we employ a difference-in-difference framework with other Missouri casinos as the control group to estimate separate effects of the merger and divestiture on each St. Louis casino. Results indicate the merged firm benefited from efficiencies, resulting in lower prices and higher quantity, however the divested casino performed worse than it did before the merger. Synthetic control estimates confirm these results. This study raises questions about whether to assess remedy success by the performance of the divested asset, or the consumer welfare of the merger as a whole inclusive of potential efficiencies. It also raises questions regarding remedy endogeneity and whether firms face incentives to offer declining assets for divestiture to satisfy regulatory concerns. Both questions have applicability beyond this case study and support the need for further research