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Quantifying the effects from horizontal mergers in European competition policy

  • Ivaldi, Marc
  • Verboven, Frank

This Paper starts from a recent case studying how merger analysis in Europe may potentially be improved through simulation analysis. Starting from the product and geographic market definition in the Merger Decision, we formulate and estimate an oligopoly model with differentiated products. The model is simulated to account for the changed multiproduct ownership structure after the merger. We show how our first two tests, a potential and an actual market power test, produce useful information, complementary to the traditional dominance principle adopted in the European Union. A drastic revision of current merger principles is thus not required. We also show how simulation analysis can provide useful additional information that goes beyond the traditional dominance principle. This is illustrated through two examples. First, we analyse the effects of efficiencies through cost savings. Second, we compare alternative merger scenarios.

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Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 23 (2005)
Issue (Month): 9-10 (December)
Pages: 669-691

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Handle: RePEc:eee:indorg:v:23:y:2005:i:9-10:p:669-691
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505551

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  1. Farrell, J. & Shapiro, C., 1988. "Horizontal Mergers: An Equilibrium Analysis," Papers 17, Princeton, Woodrow Wilson School - Discussion Paper.
  2. Ivaldi, M. & Martimort, D., 1992. "Competition Under Nonlinear Pricing," Papers 93.288, Toulouse - GREMAQ.
  3. Röller, Lars-Hendrik & Stennek, Johan & Verboven, Frank, 2000. "Efficiency Gains from Mergers," Working Paper Series 543, Research Institute of Industrial Economics.
  4. Frank Verboven, 1996. "International Price Discrimination in the European Car Market," RAND Journal of Economics, The RAND Corporation, vol. 27(2), pages 240-268, Summer.
  5. Caplin, Andrew & Nalebuff, Barry, 1991. "Aggregation and Imperfect Competition: On the Existence of Equilibrium," Econometrica, Econometric Society, vol. 59(1), pages 25-59, January.
  6. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-90, July.
  7. Jerry HAUSMAN & Gregory LEONARD & J. Douglas ZONA, 1994. "Competitive Analysis with Differentiated Products," Annales d'Economie et de Statistique, ENSAE, issue 34, pages 159-180.
  8. Anderson, Simon P & de Palma, Andre, 1992. "Multiproduct Firms: A Nested Logit Approach," Journal of Industrial Economics, Wiley Blackwell, vol. 40(3), pages 261-76, September.
  9. Damien Neven, 2002. "Discrepancies Between Markets and Regulators: an Analysis of the First ten Years of EU Merger Control," IHEID Working Papers 10-2002, Economics Section, The Graduate Institute of International Studies.
  10. Verboven, Frank, 1996. "The nested logit model and representative consumer theory," Economics Letters, Elsevier, vol. 50(1), pages 57-63, January.
  11. Werden, Gregory J & Froeb, Luke M, 1994. "The Effects of Mergers in Differentiated Products Industries: Logit Demand and Merger Policy," Journal of Law, Economics and Organization, Oxford University Press, vol. 10(2), pages 407-26, October.
  12. Pinkse, Joris & Slade, Margaret E., 2004. "Mergers, brand competition, and the price of a pint," European Economic Review, Elsevier, vol. 48(3), pages 617-643, June.
  13. Steven T. Berry, 1994. "Estimating Discrete-Choice Models of Product Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 242-262, Summer.
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