Thresholds defined on the level and change in the HHI (Herfindahl- Hirschmann Index) applied to market shares seem to be the main instrument to select notified mergers for investigation in both the EU and US. We question the use of such a selection rule in differentiated products industries. We propose the use of a structural approach to apply HHI thresholds based on profit shares rather than market shares. We illustrate our point using product data for Retail Carbonated Soft Drinks (Price, Market Share and Characteristics). We estimate company (product) mark-ups consistent with a structural model of equilibrium, using demand primitives from a Nested Logit model and a Random Coefficient model. We provide an example where the HHI thresholds based on profit shares identify potentially damaging mergers not captured by applying thresholds to output shares, or conversely, identify mergers of no concern that would be selected on the basis of output shares.
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Paper provided by School Of Economics, University College Dublin in its series Working Papers with number
200508.
Find related papers by JEL classification: K2 - Law and Economics - - Regulation and Business Law L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance L40 - Industrial Organization - - Antitrust Issues and Policies - - - General L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
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