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The Effect of Mergers on Consumer Prices: Evidence from Five Selected Case Studies

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  • Orley Ashenfelter
  • Daniel Hosken

Abstract

In this paper we propose a method to evaluate the effectiveness of U.S. horizontal merger policy and apply it to the study of five recent consumer product mergers. We selected the mergers from those that, from the public record, seemed to be most problematic for the antitrust agencies. Thus we estimate an upper bound on the likely price effect of completed mergers. Our study employs retail scanner data and uses familiar panel data program evaluation procedures to measure price changes. Our results indicate that four of the five mergers resulted in some increases in consumer prices, while the fifth merger had little effect.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13859.

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Date of creation: Mar 2008
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Publication status: published as The Effect of Mergers on Consumer Prices: Evidence from Five Mergers on the Enforcement Margin Orley Ashenfelter and Daniel Hosken Journal of Law and Economics Vol. 53, No. 3 (August 2010), pp. 417-466 Published by: The University of Chicago Press
Handle: RePEc:nbr:nberwo:13859

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  1. Robert H. Porter & J. Douglas Zona, 1999. "Ohio School Milk Markets: An Analysis of Bidding," RAND Journal of Economics, The RAND Corporation, vol. 30(2), pages 263-288, Summer.
  2. Prager, Robin A & Hannan, Timothy H, 1998. "Do Substantial Horizontal Mergers Generate Significant Price Effects? Evidence from the Banking Industry," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 46(4), pages 433-52, December.
  3. Robert W. Crandall & Clifford Winston, 2003. "Does Antitrust Policy Improve Consumer Welfare? Assessing the Evidence," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 17(4), pages 3-26, Fall.
  4. Dario Focarelli & Fabio Panetta, 2003. "Are Mergers Beneficial to Consumers? Evidence from the Market for Bank Deposits," American Economic Review, American Economic Association, American Economic Association, vol. 93(4), pages 1152-1172, September.
  5. Kim, E Han & Singal, Vijay, 1993. "Mergers and Market Power: Evidence from the Airline Industry," American Economic Review, American Economic Association, American Economic Association, vol. 83(3), pages 549-69, June.
  6. Iga Hendel & Aviv Nevo, 2002. "Sales and Consumer Inventory," Microeconomics, EconWPA 0201001, EconWPA.
  7. Newmark, Craig M, 1988. "Is Antitrust Enforcement Effective? Comment," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 96(6), pages 1315-28, December.
  8. Orley Ashenfelter & David Card, 1984. "Using the Longitudinal Structure of Earnings to Estimate the Effect of Training Programs," NBER Working Papers 1489, National Bureau of Economic Research, Inc.
  9. Raymond Deneckere & Carl Davidson, 1985. "Incentives to Form Coalitions with Bertrand Competition," RAND Journal of Economics, The RAND Corporation, vol. 16(4), pages 473-486, Winter.
  10. Mark J. McCabe, 2002. "Journal Pricing and Mergers: A Portfolio Approach," American Economic Review, American Economic Association, American Economic Association, vol. 92(1), pages 259-269, March.
  11. Moulton, Brent R, 1990. "An Illustration of a Pitfall in Estimating the Effects of Aggregate Variables on Micro Unit," The Review of Economics and Statistics, MIT Press, vol. 72(2), pages 334-38, May.
  12. Block, Michael Kent & Nold, Frederick Carl, 1981. "The Deterrent Effect of Antitrust Enforcement," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 89(3), pages 429-45, June.
  13. Jonathan B. Baker, 2003. "The Case for Antitrust Enforcement," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 17(4), pages 27-50, Fall.
  14. Barton, David M & Sherman, Roger, 1984. "The Price and Profit Effects of Horizontal Merger: A Case Study," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 33(2), pages 165-77, December.
  15. Steven T. Berry & Joel Waldfogel, 2001. "Do Mergers Increase Product Variety? Evidence From Radio Broadcasting," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 116(3), pages 1009-1025, August.
  16. Sproul, Michael F, 1993. "Antitrust and Prices," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 101(4), pages 741-54, August.
  17. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, Econometric Society, vol. 63(4), pages 841-90, July.
  18. Deaton,Angus & Muellbauer,John, 1980. "Economics and Consumer Behavior," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521296762.
  19. repec:rje:randje:v:37:y:2006:3:p:543-561 is not listed on IDEAS
  20. Peters, Craig, 2006. "Evaluating the Performance of Merger Simulation: Evidence from the U.S. Airline Industry," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 49(2), pages 627-49, October.
  21. Vita, Michael G & Sacher, Seth, 2001. "The Competitive Effects of Not-for-Profit Hospital Mergers: A Case Study," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 49(1), pages 63-84, March.
  22. Aviv Nevo, 2000. "Mergers with Differentiated Products: The Case of the Ready-to-Eat Cereal Industry," RAND Journal of Economics, The RAND Corporation, vol. 31(3), pages 395-421, Autumn.
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Citations

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Cited by:
  1. Jürgen Janger, 2008. "Supply-Side Triggers for Inflation in Austria," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 2, pages 34–69.
  2. Oliver Budzinski & Isabel Ruhmer, 2008. "Merger Simulation in Competition Policy: A Survey," MAGKS Papers on Economics, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung) 200807, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  3. Orley Ashenfelter & Daniel Hosken & Matthew Weinberg, 2009. "Generating Evidence to Guide Merger Enforcement," CPI Journal, Competition Policy International, Competition Policy International, vol. 5.
  4. Keith Hylton, 2011. "Brown Shoe Versus the Horizontal Merger Guidelines," Review of Industrial Organization, Springer, Springer, vol. 39(1), pages 95-106, August.
  5. Oliver Budzinski, 2009. "Modern Industrial Economics and Competition Policy: Open Problems and Possible Limits," Working Papers, University of Southern Denmark, Department of Environmental and Business Economics 93/09, University of Southern Denmark, Department of Environmental and Business Economics.
  6. Dennis W. Carlton, 2009. "Why We Need to Measure the Effect of Merger Policy and How to Do It," NBER Working Papers 14719, National Bureau of Economic Research, Inc.
  7. Angrist, Joshua & Pischke, Jörn-Steffen, 2010. "The Credibility Revolution in Empirical Economics: How Better Research Design Is Taking the Con out of Econometrics," IZA Discussion Papers 4800, Institute for the Study of Labor (IZA).
  8. Michael Salinger, 2011. "The 2010 Revised Merger Guidelines and Modern Industrial Economics," Review of Industrial Organization, Springer, Springer, vol. 39(1), pages 159-168, August.
  9. Oliver Budzinski, 2010. "An Institutional Analysis of the Enforcement Problems in Merger Control," Working Papers, University of Southern Denmark, Department of Environmental and Business Economics 101/10, University of Southern Denmark, Department of Environmental and Business Economics.
  10. Paul W. Dobson & Claudio A. Piga, 2009. "Mergers and Business Model Assimilation: Evidence from Low-Cost Airlines Takeovers," Discussion Paper Series, Department of Economics, Loughborough University 2009_2, Department of Economics, Loughborough University, revised Feb 2009.
  11. Aviv Nevo & Michael D. Whinston, 2010. "Taking the Dogma out of Econometrics: Structural Modeling and Credible Inference," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 24(2), pages 69-82, Spring.
  12. Packalen, Mikko & Sen, Anindya, 2013. "Static and dynamic merger effects: A market share based empirical analysis," International Review of Law and Economics, Elsevier, Elsevier, vol. 36(C), pages 12-24.

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