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Merger Simulation: A Simplified Approach with New Applications

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  • Epstein, Roy J.
  • Rubinfeld, Daniel

Abstract

Merger simulation is growing in importance as a tool to evaluate the unilateral competitive effects of mergers. This paper offers a relatively non-technical description of the principles of merger simulation. In addition, it introduces PCAIDS, a new and highly flexible "calibrated-demand" merger simulation methodology that is based on a simplified version of AIDS. PCAIDS can be implemented using market shares and two price elasticities; scanner or transaction-level data are not required. The paper offers some applications of merger simulation with PCAIDS that include comparisons with other simulation models. It also shows how PCAIDS can be applied to the analysis of efficiencies, divestiture, and product repositioning/entry. Finally, the paper offers an analysis of the Merger Guidelines safeharbors. A detailed mathematical appendix is included.

Suggested Citation

  • Epstein, Roy J. & Rubinfeld, Daniel, 2012. "Merger Simulation: A Simplified Approach with New Applications," Department of Economics, Working Paper Series qt2k9116ph, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    • Handle: RePEc:cdl:econwp:qt2k9116ph
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    Citations

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    Cited by:

    1. Oliver Budzinski & Isabel Ruhmer, 2010. "Merger Simulation In Competition Policy: A Survey," Journal of Competition Law and Economics, Oxford University Press, vol. 6(2), pages 277-319.
    2. Daljord, Øystein & Sørgard, Lars, 2011. "Single-product versus uniform SSNIPs," International Review of Law and Economics, Elsevier, vol. 31(2), pages 142-146, June.
    3. Kaplow, Louis & Shapiro, Carl, 2007. "Antitrust," Handbook of Law and Economics, in: A. Mitchell Polinsky & Steven Shavell (ed.), Handbook of Law and Economics, edition 1, volume 2, chapter 15, pages 1073-1225, Elsevier.
    4. Marie Goppelsroeder & Maarten Pieter Schinkel & Jan Tuinstra, 2008. "Quantifying The Scope For Efficiency Defense In Merger Control: The Werden‐Froeb‐Index," Journal of Industrial Economics, Wiley Blackwell, vol. 56(4), pages 778-808, December.
    5. Nisvan Erkal & Daniel Piccinin, 2006. "Horizontal Mergers with Free Entry in Differentiated Oligopolies," Department of Economics - Working Papers Series 976, The University of Melbourne.
    6. Stenborg, Markku, 2004. "Are There Biases in the Market Definition Procedure?," Discussion Papers 903, The Research Institute of the Finnish Economy.
    7. Gary Gorton & Matthias Kahl & Richard Rosen, 2005. "Eat or Be Eaten: A Theory of Mergers and Merger Waves," NBER Working Papers 11364, National Bureau of Economic Research, Inc.
    8. Richard Dagen & Daniel Richards, 2006. "Merger Theory and Evidence: The Baby-Food Case Reconsidered," Discussion Papers Series, Department of Economics, Tufts University 0602, Department of Economics, Tufts University.
    9. Jerome Foncel & Marc Ivaldi & Jrisy Motis, 2008. "An Econometric Workbench for Comparing the Substantive and Dominance Tests in Horizontal Merger Analysis," Working Papers 0833, University of Crete, Department of Economics.
    10. Oliver Budzinski, 2008. "A Note on Competing Merger Simulation Models in Antitrust Cases: Can the Best Be Identified?," MAGKS Papers on Economics 200803, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).

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