This paper examines how information on the purchasing patterns of differentcustomer segments can be used to more accurately evaluate the economicimpact of mergers. Using a detailed dataset for the leading manufacturers in theUS during the late nineties, I evaluate the welfare effects of the biggest ($25billion) merger in the history of the PC industry between Hewlett-Packard andCompaq. I follow a two-step empirical strategy. In the first step, I estimate ademand system employing a random coefficients discrete choice model. In thesecond step, I simulate the postmerger oligopolistic equilibrium and compute thewelfare effects. I extend previous research by analysing the merger effects notonly for the whole market but also for three customer segments (home, smallbusiness and large business). Results from the demand estimation and mergeranalysis reveal that: (i) the random coefficients model provides a more realisticmarket picture than simpler models, (ii) despite being the world's second andthird largest PC manufacturers, the merged HP-Compaq entity would not raisepostmerger prices significantly, (iii) there is considerable heterogeneity inpreferences across segments that persists over time, and (iv) the merger effectsdiffer considerably across segments.
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Paper provided by Suntory and Toyota International Centres for Economics and Related Disciplines, LSE in its series STICERD - Economics of Industry Papers with number
39.
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.:
Steven Berry & Ariel Pakes, 2007.
"The Pure Characteristics Demand Model,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 48(4), pages 1193-1225, November.
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