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Antitrust Market De nition and the Sensitivity of the Diversion Ratio

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  • Lydia Cheung

    () (School of Economics, Faculty of Business and Law, Auckland University of Technology)

Abstract

The diversion ratio is a key ingredient for merger analysis, as mentioned in the new Horizontal Merger Guidelines (2010) in the U.S. and similar documents abroad. It is a measure of substitutability between merging goods, which determines the potential for price increase post-merger. There is little existing research on how the diversion ratio is to be estimated. This paper is the rst one to explore estimation issues through standard demand estimation techniques and how changes in the antitrust market de nition a ect the resultant diversion ratios. I use random draws of supermarket products from a supermarket dataset to show that the estimated diversion ratios are, in fact, not greatly a ected by market de nition. They have the same magnitude as baseline estimates and the rst signi cant gures vary within a small range.

Suggested Citation

  • Lydia Cheung, 2016. "Antitrust Market De nition and the Sensitivity of the Diversion Ratio," Working Papers 2016-02, Auckland University of Technology, Department of Economics.
  • Handle: RePEc:aut:wpaper:201602
    as

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    File URL: http://www.aut.ac.nz/__data/assets/pdf_file/0020/631172/Economics-WP-2016-02NEW-COVER-PAGE.pdf
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    References listed on IDEAS

    as
    1. Farrell Joseph & Shapiro Carl, 2010. "Upward Pricing Pressure in Horizontal Merger Analysis: Reply to Epstein and Rubinfeld," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 10(1), pages 1-9, September.
    2. Christopher T. Conlon & Julie Holland Mortimer, 2013. "Empirical Properties of Diversion Ratios," Boston College Working Papers in Economics 864, Boston College Department of Economics, revised 01 Jan 2019.
    3. Christopher T. Conlon & Julie Holland Mortimer, 2013. "An Experimental Approach to Merger Evaluation," NBER Working Papers 19703, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    horizontal merger; unilateral price e ect; di erentiated products; upward pricing pressure; diversion ratio; elasticity;

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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