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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 and 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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Related research

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

References

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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. 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.
  4. 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.
  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. Douglas D. Davis & Bart J. Wilson, 2000. "Firm-specific cost savings and market power," Economic Theory, Springer, vol. 16(3), pages 545-565.
  7. Douglas D. Davis & Charles A. Holt, 1994. "Market Power and Mergers in Laboratory Markets with Posted Prices," RAND Journal of Economics, The RAND Corporation, vol. 25(3), pages 467-487, Autumn.
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Citations

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Cited by:
  1. Peeters, Ronald & Strobel, Martin, 2009. "Pricing behavior in asymmetric markets with differentiated products," Open Access publications from Maastricht University urn:nbn:nl:ui:27-23071, Maastricht University.
  2. 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.
  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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