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More Evidence on the Performance of Merger Simulations

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  • Matthew C. Weinberg

Abstract

Merger simulations are commonly used to simulate the effects of potential mergers. Despite the large resources devoted to merger review, little evidence exists on the accuracy of these methods. This paper uses the acquisition of Tambrands by Proctor and Gamble to provide evidence on the efficacy of merger simulation. Two simple demand systems are estimated under several identification assumptions and combined with a static model of price competition. Simulations predict small price effects of about 1 percent for the merging firms' brands, while direct estimates indicate the merger raised prices by 5-8 percent.

Suggested Citation

  • Matthew C. Weinberg, 2011. "More Evidence on the Performance of Merger Simulations," American Economic Review, American Economic Association, vol. 101(3), pages 51-55, May.
  • Handle: RePEc:aea:aecrev:v:101:y:2011:i:3:p:51-55
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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.3.51
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    References listed on IDEAS

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    1. Nevo, Aviv, 2001. "Measuring Market Power in the Ready-to-Eat Cereal Industry," Econometrica, Econometric Society, pages 307-342.
    2. Jean-Pierre H. Dubé & Jeremy T. Fox & Che-Lin Su, 2009. "Improving the Numerical Performance of BLP Static and Dynamic Discrete Choice Random Coefficients Demand Estimation," NBER Working Papers 14991, National Bureau of Economic Research, Inc.
    3. Steven T. Berry, 1994. "Estimating Discrete-Choice Models of Product Differentiation," RAND Journal of Economics, The RAND Corporation, pages 242-262.
    4. Aviv Nevo, 2000. "A Practitioner's Guide to Estimation of Random-Coefficients Logit Models of Demand," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 9(4), pages 513-548, December.
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    Cited by:

    1. Brito, Duarte & Pereira, Pedro & Ramalho, Joaquim J.S., 2013. "Mergers, coordinated effects and efficiency in the Portuguese non-life insurance industry," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 554-568.
    2. Marie-Laure Allain & Claire Chambolle & Stéphane Turolla & Sofia Villas-Boas, 2013. "The Impact of Retail Mergers on Food Prices: Evidence from France," Working Papers hal-00920460, HAL.
    3. Friberg, Richard & Romahn, André, 2015. "Divestiture requirements as a tool for competition policy: A case from the Swedish beer market," International Journal of Industrial Organization, Elsevier, vol. 42(C), pages 1-18.
    4. Björnerstedt, Jonas & Verboven, Frank, 2012. "Does Merger Simulation Work? A "Natural Experiment" in the Swedish Analgesics Market Market," CEPR Discussion Papers 9027, C.E.P.R. Discussion Papers.
    5. Welter, Dominik & Napel, Stefan, 2016. "Responsibility-based allocation of cartel damages," Annual Conference 2016 (Augsburg): Demographic Change 145886, Verein für Socialpolitik / German Economic Association.
    6. Romahn, André & Friberg, Richard, 2012. "Ex-Post Merger Review and Divestitures," IESE Research Papers D/1056, IESE Business School.
    7. DOI Naoshi & OHASHI Hiroshi, 2015. "An Airline Merger and its Remedies: JAL-JAS of 2002," Discussion papers 15100, Research Institute of Economy, Trade and Industry (RIETI).
    8. Jan De Loecker & Paul T. Scott, 2016. "Estimating market power Evidence from the US Brewing Industry," NBER Working Papers 22957, National Bureau of Economic Research, Inc.
    9. Paul Scott, 2017. "Estimating Market Power: Evidence from the US Brewing Industry," 2017 Meeting Papers 389, Society for Economic Dynamics.
    10. Jan De Loecker & Paul T. Scott, 2016. "Estimating market power Evidence from the US Brewing Industry," NBER Working Papers 22957, National Bureau of Economic Research, Inc.
    11. De Nijs, Romain, 2012. "The price discrimination effect of a large merger of parking garages," Economics Letters, Elsevier, vol. 117(3), pages 928-931.
    12. Grigolon, Laura & Leheyda, Nina & Verboven, Frank, 2016. "Scrapping subsidies during the financial crisis — Evidence from Europe," International Journal of Industrial Organization, Elsevier, vol. 44(C), pages 41-59.
    13. Leheyda, Nina & Verboven, Frank, 2013. "Scrapping Subsidies during the Financial Crisis - Evidence from the Europe," CEPR Discussion Papers 9629, C.E.P.R. Discussion Papers.

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