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Brewed in North America: Mergers, marginal costs, and efficiency

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  • Grieco, Paul
  • Pinkse, Joris
  • Slade, Margaret

Abstract

We show how production and pricing data can be used to estimate merger-related efficiencies using pre-merger data, and we assess the changes in efficiency and marginal costs that are expected to occur post-merger. To do this, we jointly estimate firm level returns to scale, technical change, TFP growth, and price-cost markups. We implement our empirical model using data for the North American (US and Canadian) brewing industry, and we use the estimated model of firm technology to evaluate the changes that are associated with the merger between Molson and Coors. We forecast nontrivial increases in returns to scale and declines in marginal costs and we verify those results by analyzing the impact of the merger retrospectively using post-merger data.

Suggested Citation

  • Grieco, Paul & Pinkse, Joris & Slade, Margaret, 2018. "Brewed in North America: Mergers, marginal costs, and efficiency," International Journal of Industrial Organization, Elsevier, vol. 59(C), pages 24-65.
    • Handle: RePEc:eee:indorg:v:59:y:2018:i:c:p:24-65
    DOI: 10.1016/j.ijindorg.2017.08.003
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    Cited by:

    1. Slade, Margaret E., 2019. "Vertical Mergers: Ex Post Evidence and Ex Ante Evaluation Methods," Microeconomics.ca working papers margaret_e._slade-2019-10, Vancouver School of Economics, revised 25 Jun 2019.
    2. Jeff Luckstead & Stephen Devadoss, 2021. "Taste renaissance, tax reform, and industrial organization of the beer industry," Economic Inquiry, Western Economic Association International, vol. 59(4), pages 1702-1722, October.
    3. Pröll, Simon & Salhofer, Klaus & Karagiannis, Giannis, 2019. "Advertising and Markups: The Case of the German Brewing Industry," Discussion Papers DP-73-2019, University of Natural Resources and Life Sciences, Vienna, Department of Economics and Social Sciences, Institute for Sustainable Economic Development.
    4. Margaret E. Slade, 2021. "Vertical Mergers: A Survey of Ex Post Evidence and Ex Ante Evaluation Methods," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 58(4), pages 493-511, June.
    5. Luckstead,, Jeff & Devadoss, Stephen, 2022. "Taste Renaissance, Tax Reform, and Industrial Organization of the Beer Industry," 2022 Annual Meeting, July 31-August 2, Anaheim, California 322138, Agricultural and Applied Economics Association.
    6. repec:zbw:inwedp:732019 is not listed on IDEAS
    7. Timothy J. Richards & Bradley J. Rickard, 2021. "Dynamic model of beer pricing and buyouts," Agribusiness, John Wiley & Sons, Ltd., vol. 37(4), pages 685-712, October.
    8. Simon Pröll & Giannis Karagiannis & Klaus Salhofer, 2019. "Advertising and Markups: The Case of the German Brewing Industry," Working Papers 732019, University of Natural Resources and Life Sciences, Vienna, Department of Economics and Social Sciences, Institute for Sustainable Economic Development.

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    More about this item

    Keywords

    Mergers; Efficiencies; Marginal costs; Returns to scale; Technical change; Productivity;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L49 - Industrial Organization - - Antitrust Issues and Policies - - - Other
    • L66 - Industrial Organization - - Industry Studies: Manufacturing - - - Food; Beverages; Cosmetics; Tobacco

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