DIFFERENTIAL MERGER EFFECTS: The Case of the Personal Computer Industry

This paper examines how information on the purchasing patterns of differentcustomer segments can be used to more accurately evaluate the economicimpact of mergers. Using a detailed dataset for the leading manufacturers in theUS during the late nineties, I evaluate the welfare effects of the biggest ($25billion) merger in the history of the PC industry between Hewlett-Packard andCompaq. I follow a two-step empirical strategy. In the first step, I estimate ademand system employing a random coefficients discrete choice model. In thesecond step, I simulate the postmerger oligopolistic equilibrium and compute thewelfare effects. I extend previous research by analysing the merger effects notonly for the whole market but also for three customer segments (home, smallbusiness and large business). Results from the demand estimation and mergeranalysis reveal that: (i) the random coefficients model provides a more realisticmarket picture than simpler models, (ii) despite being the world's second andthird largest PC manufacturers, the merged HP-Compaq entity would not raisepostmerger prices significantly, (iii) there is considerable heterogeneity inpreferences across segments that persists over time, and (iv) the merger effectsdiffer considerably across segments.