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

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Author Info

  • Orley Ashenfelter

    (Princeton University)

  • Daniel Hosken

    (Federal Trade Commission)

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 Princeton University, Department of Economics, Center for Economic Policy Studies. in its series Working Papers with number 1037.

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Date of creation: Feb 2008
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Handle: RePEc:pri:cepsud:160ashenfelter

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Keywords: Horizontal Mergers; Merger Retrospectives; Antitrust; Consumer Products; Program Evaluation;

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References

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  1. Dario Focarelli & Fabio Panetta, 2003. "Are Mergers Beneficial to Consumers? Evidence from the Market for Bank Deposits," American Economic Review, American Economic Association, vol. 93(4), pages 1152-1172, September.
  2. Iga Hendel and Aviv Nevo., 2001. "Sales and Consumer Inventory," Economics Working Papers E01-307, University of California at Berkeley.
  3. 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, vol. 46(4), pages 433-52, December.
  4. repec:reg:wpaper:263 is not listed on IDEAS
  5. Vita, Michael G & Sacher, Seth, 2001. "The Competitive Effects of Not-for-Profit Hospital Mergers: A Case Study," Journal of Industrial Economics, Wiley Blackwell, vol. 49(1), pages 63-84, March.
  6. 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.
  7. Robert H. Porter & J. Douglas Zona, 1997. "Ohio School Milk Markets: An Analysis of Bidding," NBER Working Papers 6037, National Bureau of Economic Research, Inc.
  8. Mark J. McCabe, 2002. "Journal Pricing and Mergers: A Portfolio Approach," American Economic Review, American Economic Association, vol. 92(1), pages 259-269, March.
  9. Sproul, Michael F, 1993. "Antitrust and Prices," Journal of Political Economy, University of Chicago Press, vol. 101(4), pages 741-54, August.
  10. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-90, July.
  11. Barton, David M & Sherman, Roger, 1984. "The Price and Profit Effects of Horizontal Merger: A Case Study," Journal of Industrial Economics, Wiley Blackwell, vol. 33(2), pages 165-77, December.
  12. 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, vol. 49(2), pages 627-49, October.
  13. Jonathan B. Baker, 2003. "The Case for Antitrust Enforcement," Journal of Economic Perspectives, American Economic Association, vol. 17(4), pages 27-50, Fall.
  14. 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.
  15. Deaton,Angus & Muellbauer,John, 1980. "Economics and Consumer Behavior," Cambridge Books, Cambridge University Press, number 9780521296762, April.
  16. Kim, E Han & Singal, Vijay, 1993. "Mergers and Market Power: Evidence from the Airline Industry," American Economic Review, American Economic Association, vol. 83(3), pages 549-69, June.
  17. Newmark, Craig M, 1988. "Is Antitrust Enforcement Effective? Comment," Journal of Political Economy, University of Chicago Press, vol. 96(6), pages 1315-28, December.
  18. Block, Michael Kent & Nold, Frederick Carl, 1981. "The Deterrent Effect of Antitrust Enforcement," Journal of Political Economy, University of Chicago Press, vol. 89(3), pages 429-45, June.
  19. repec:rje:randje:v:37:y:2006:3:p:543-561 is not listed on IDEAS
  20. Steven T. Berry & Joel Waldfogel, 2001. "Do Mergers Increase Product Variety? Evidence From Radio Broadcasting," The Quarterly Journal of Economics, MIT Press, vol. 116(3), pages 1009-1025, August.
  21. 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.
  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.
  23. Robert W. Crandall & Clifford Winston, 2003. "Does Antitrust Policy Improve Consumer Welfare? Assessing the Evidence," Journal of Economic Perspectives, American Economic Association, vol. 17(4), pages 3-26, Fall.
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Cited by:
  1. Joshua D. Angrist & J�rn-Steffen Pischke, 2010. "The Credibility Revolution in Empirical Economics: How Better Research Design Is Taking the Con out of Econometrics," Journal of Economic Perspectives, American Economic Association, vol. 24(2), pages 3-30, Spring.
  2. Unknown & Dennis Carlton, 2009. "Why We Need to Measure the Effect of Merger Policy and How to Do It," CPI Journal, Competition Policy International, vol. 5.
  3. Packalen, Mikko & Sen, Anindya, 2013. "Static and dynamic merger effects: A market share based empirical analysis," International Review of Law and Economics, Elsevier, vol. 36(C), pages 12-24.
  4. Keith Hylton, 2011. "Brown Shoe Versus the Horizontal Merger Guidelines," Review of Industrial Organization, Springer, vol. 39(1), pages 95-106, August.
  5. Orley C. Ashenfelter & Daniel Hosken & Matthew Weinberg, 2009. "Generating Evidence to Guide Merger Enforcement," Working Papers 1137, Princeton University, Department of Economics, Center for Economic Policy Studies..
  6. Oliver Budzinski & Isabel Ruhmer, 2009. "Merger Simulation in Competition Policy: A Survey," Working Papers 82/09, University of Southern Denmark, Department of Environmental and Business Economics.
  7. Michael Salinger, 2011. "The 2010 Revised Merger Guidelines and Modern Industrial Economics," Review of Industrial Organization, Springer, vol. 39(1), pages 159-168, August.
  8. Aviv Nevo & Michael D. Whinston, 2010. "Taking the Dogma out of Econometrics: Structural Modeling and Credible Inference," Journal of Economic Perspectives, American Economic Association, vol. 24(2), pages 69-82, Spring.
  9. Jürgen Janger, 2008. "Supply-Side Triggers for Inflation in Austria," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 2, pages 34–69.
  10. Paul W. Dobson & Claudio A. Piga, 2009. "Mergers and Business Model Assimilation: Evidence from Low-Cost Airlines Takeovers," Discussion Paper Series 2009_2, Department of Economics, Loughborough University, revised Feb 2009.
  11. Oliver Budzinski, 2010. "An Institutional Analysis of the Enforcement Problems in Merger Control," Working Papers 101/10, University of Southern Denmark, Department of Environmental and Business Economics.
  12. Oliver Budzinski, 2009. "Modern Industrial Economics and Competition Policy: Open Problems and Possible Limits," Working Papers 93/09, University of Southern Denmark, Department of Environmental and Business Economics.

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