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More Evidence on the Performance of Merger Simulations

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  • Matthew C. Weinberg

Abstract

Merger simulations are commonly used to simulate the effects of potential mergers. Despite the large resources devoted to merger review, little evidence exists on the accuracy of these methods. This paper uses the acquisition of Tambrands by Proctor and Gamble to provide evidence on the efficacy of merger simulation. Two simple demand systems are estimated under several identification assumptions and combined with a static model of price competition. Simulations predict small price effects of about 1 percent for the merging firms' brands, while direct estimates indicate the merger raised prices by 5-8 percent.

Suggested Citation

  • Matthew C. Weinberg, 2011. "More Evidence on the Performance of Merger Simulations," American Economic Review, American Economic Association, vol. 101(3), pages 51-55, May.
    • Handle: RePEc:aea:aecrev:v:101:y:2011:i:3:p:51-55
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    References listed on IDEAS

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    1. Claudio Lucarelli & Jeffrey Prince & Kosali Simon, 2012. "The Welfare Impact Of Reducing Choice In Medicare Part D: A Comparison Of Two Regulation Strategies," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(4), pages 1155-1177, November.
    2. Christopher R. Knittel & Konstantinos Metaxoglou, 2008. "Estimation of Random Coefficient Demand Models: Challenges, Difficulties and Warnings," NBER Working Papers 14080, National Bureau of Economic Research, Inc.
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