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Divestiture requirements as a tool for competition policy: A case from the Swedish beer market

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  • Friberg, Richard
  • Romahn, André

Abstract

We investigate the effect of divestitures on prices and welfare following the Carlsberg–Pripps merger in the Swedish beer market. Both difference-in-difference estimation and simulations using a random coefficients logit model suggest that divestitures are important for dampening price increases. Prices of divested brands fall by around 3% and the predicted price increase for Carlsberg falls from 3 to 1.6% as a result of the divestitures. To guide practice on divestitures, we investigate the role of the recipient and the number and characteristics of the divested products by simulating post-merger outcomes for all relevant cases. We find that in this setting with large multiproduct firms, the competition authority's most effective means to dampen adverse post-merger outcomes are to aim for a small recipient firm and attain a large number of divested products. Enforcing larger divestitures in terms of market share and raising the average cross-price elasticity between the merging parties' divested and retained products strengthen the dampening effect further.

Suggested Citation

  • 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.
  • Handle: RePEc:eee:indorg:v:42:y:2015:i:c:p:1-18
    DOI: 10.1016/j.ijindorg.2015.06.005
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    Cited by:

    1. Luca Aguzzoni & Elena Argentesi & Lorenzo Ciari & Tomaso Duso & Massimo Tognoni, 2016. "Ex post Merger Evaluation in the U.K. Retail Market for Books," Journal of Industrial Economics, Wiley Blackwell, vol. 64(1), pages 170-200, March.
    2. Rickert, Dennis & Schain, Jan Philip & Stiebale, Joel, 2018. "Local market structure and consumer prices: Evidence from a retail merger," DICE Discussion Papers 280, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    3. Argentesi, Elena & Buccirossi, Paolo & Cervone, Roberto & Duso, Tomaso & Marrazzo, Alessia, 2016. "The effect of retail mergers on prices and variety: An ex-post evaluation," DICE Discussion Papers 225, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).

    More about this item

    Keywords

    Divestitures; Merger simulation; Ex-post merger review;

    JEL classification:

    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L66 - Industrial Organization - - Industry Studies: Manufacturing - - - Food; Beverages; Cosmetics; Tobacco

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