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Bridging the gap between horizontal and vertical merger simulation: Modifications and extensions of PCAID

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  • Bush, C. Anthony

Abstract

A general theoretical and empirical framework is developed for assessing the potential of a vertically integrated firm to foreclose downstream competitors. Using this framework a policymaker may also evaluate the empirical welfare effects from a vertically integrated firm raising rivals' costs. The framework is developed within the context of a vertically integrated multichannel video programming distributor ("MVPD"), and this framework extends the applicability of PCAIDS to vertical mergers. Using public data from the Comcast-Time Warner-Adelphia Merger Order of the Federal Communications Commission, price effects from the threat and action of foreclosure in several designated marketing areas were simulated. Empirical results suggest that the Commission Staff Model substantially underestimated price increases to end users as a result of the threat and action of foreclosure. Empirical results suggest that Commission's Program Access Rules were essential for MVPD competition.

Suggested Citation

  • Bush, C. Anthony, 2014. "Bridging the gap between horizontal and vertical merger simulation: Modifications and extensions of PCAID," Economics Discussion Papers 2014-33, Kiel Institute for the World Economy (IfW Kiel).
    • Handle: RePEc:zbw:ifwedp:201433
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    References listed on IDEAS

    as
    1. C. Bush & Paul Zimmerman, 2010. "Media Mergers with Preference Externalities and Their Implications for Content Diversity, Consumer Welfare, and Policy," Journal of Industry, Competition and Trade, Springer, vol. 10(2), pages 105-133, June.
    2. Chen, Yongmin, 2001. "On Vertical Mergers and Their Competitive Effects," RAND Journal of Economics, The RAND Corporation, vol. 32(4), pages 667-685, Winter.
    3. Ordover, Janusz A & Saloner, Garth & Salop, Steven C, 1990. "Equilibrium Vertical Foreclosure," American Economic Review, American Economic Association, vol. 80(1), pages 127-142, March.
    4. Michael A. Salinger, 1988. "Vertical Mergers and Market Foreclosure," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 103(2), pages 345-356.
    5. Rubinfeld, Daniel L. & Epstein, Roy J., 2001. "Merger Simulation: A Simplified Approach with New Applications," Competition Policy Center, Working Paper Series qt2sq9s8c8, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
    6. Austan Goolsbee & Amil Petrin, 2004. "The Consumer Gains from Direct Broadcast Satellites and the Competition with Cable TV," Econometrica, Econometric Society, vol. 72(2), pages 351-381, March.
    7. Lisa M. George & Joel Waldfogel, 2006. "The New York Times and the Market for Local Newspapers," American Economic Review, American Economic Association, vol. 96(1), pages 435-447, March.
    8. Epstein, Roy J. & Rubinfeld, Daniel, 2001. "Merger Simulation: A Simplified Approach with New Applications," Department of Economics, Working Paper Series qt1c65s24r, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    9. Roy J. Epstein & Daniel L. Rubinfeld, 2002. "Merger Simulation: A Simplified Approach with New Applications," Industrial Organization 0201002, University Library of Munich, Germany.
    10. Epstein, Roy J. & Rubinfeld, Daniel L., 2001. "Merger Simulation: A Simplified Approach with New Applications," Department of Economics, Working Paper Series qt9jt389nb, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Mergers; merger simulation; vertical merger; horizontal merger; telecommunications; PCAIDS; foreclosure; raising rival's cost; two-sided markets;
    All these keywords.

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • K2 - Law and Economics - - Regulation and Business Law
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications

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