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Equilibrium Price Dispersion, Mergers and Synergies: An Experimental Investigation of Differentiated Product Competition

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Author Info

  • Douglas Davis
  • Bart Wilson

Abstract

This paper reports an experiment conducted to examine market performance and mergers in an asymmetric differentiated product oligopoly. We find that static Nash predictions organize mean market outcomes reasonably well. Markets on average respond to horizontal mergers with price increases as predicted and marginal cost synergies exert the predicted the power-mitigating price effects. Nash predictions, however, organize outcomes for specific markets and for the different firm-types less precisely. The variability of individual markets and firm-level decisions undermine the predictive capacity of merger simulations conducted with the Antitrust Logit Model, a merger device used by US antitrust authorities to help identify problematic mergers.

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File URL: http://www.tandfonline.com/10.1080/13571510600783922
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal International Journal of the Economics of Business.

Volume (Year): 13 (2006)
Issue (Month): 2 ()
Pages: 169-194

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Handle: RePEc:taf:ijecbs:v:13:y:2006:i:2:p:169-194

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Web page: http://www.tandfonline.com/CIJB20

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Web: http://www.tandfonline.com/pricing/journal/CIJB20

Related research

Keywords: Differentiated products; Antitrust analysis; Synergies; Experimental economics;

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  1. Bart Wilson, 1998. "What Collusion? Unilateral Market Power as a Catalyst for Countercyclical Markups," Experimental Economics, Springer, vol. 1(2), pages 133-145, September.
  2. Huck, Steffen & Normann, Hans-Theo & Oechssler, Jorg, 2000. "Does information about competitors' actions increase or decrease competition in experimental oligopoly markets?," International Journal of Industrial Organization, Elsevier, vol. 18(1), pages 39-57, January.
  3. Smith, Vernon L, 1985. "Experimental Economics: Reply," American Economic Review, American Economic Association, vol. 75(1), pages 264-72, March.
  4. repec:kap:expeco:v:5:y:2002:i:2:p:91-110 is not listed on IDEAS
  5. Davis, Douglas D., 2002. "Strategic interactions, market information and predicting the effects of mergers in differentiated product markets," International Journal of Industrial Organization, Elsevier, vol. 20(9), pages 1277-1312, November.
  6. Werden, G.J. & G.J. & Froeb, L.M., 1995. "Simulation as an Alternative to Structural Merger Policy in Differentiated Products Industries," Papers 95-02, U.S. Department of Justice - Antitrust Division.
  7. Douglas D. Davis & Bart J. Wilson, 2000. "Firm-specific cost savings and market power," Economic Theory, Springer, vol. 16(3), pages 545-565.
  8. Werden, Gregory J & Froeb, Luke M, 1994. "The Effects of Mergers in Differentiated Products Industries: Logit Demand and Merger Policy," Journal of Law, Economics and Organization, Oxford University Press, vol. 10(2), pages 407-26, October.
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Citations

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Cited by:
  1. Douglas D. Davis & Bart J. Wilson, 2006. "Strategic Buyers, Horizontal Mergers and Synergies: An Experimental Investigation," Working Papers 0601, VCU School of Business, Department of Economics.
  2. Peeters, Ronald & Strobel, Martin, 2009. "Pricing behavior in asymmetric markets with differentiated products," International Journal of Industrial Organization, Elsevier, vol. 27(1), pages 24-32, January.
  3. Hans-Theo Normann & Roberto Ricciuti, 2009. "Laboratory Experiments For Economic Policy Making," Journal of Economic Surveys, Wiley Blackwell, vol. 23(3), pages 407-432, 07.

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