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EU Merger Control in Differentiated Product Industries

  • Franco Mariuzzo
  • Patrick Paul Walsh
  • Ciara Whelan

EU Merger Control Regulation No 4064/89 tended to rely on a dominance test, based on the market share of undertakings, to indicate the level and potential changes in market power. The use of such in differentiated product industries is questionable. New EC Merger Regulation No 139/2004 introduces a substantive test to ensure that all post-merger scenarios posing a threat to competition, even amongst small undertakings, are detected. We propose the use of a simple structural approach to undertake a substantive test. We illustrate our point over 28 periods, 178 products (13 companies), for Retail Carbonated Soft Drinks. We estimate company (product) mark-ups using a “simple” Nested Logit model, Berry (1994) and a more “sophisticated” model, Berry, Levinsohn and Pakes (1995). While the dominance test may fail to identify damaging mergers in differentiated products industries, this technique will not.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1312.

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Date of creation: 2004
Date of revision:
Handle: RePEc:ces:ceswps:_1312
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  1. Nevo, Aviv, 1999. "Measuring Market Power in the Ready-to-Eat Cereal Industry," Competition Policy Center, Working Paper Series qt7cm5p858, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
  2. Hausman, Jerry A, 1978. "Specification Tests in Econometrics," Econometrica, Econometric Society, vol. 46(6), pages 1251-71, November.
  3. Levinsohn, James & Berry, Steven & Pakes, Ariel, 2004. "Differentiated Products Demand Systems from a Combination of Micro and Macro Data: The New Car Market," Scholarly Articles 3436404, Harvard University Department of Economics.
  4. Caplin, Andrew & Nalebuff, Barry, 1991. "Aggregation and Imperfect Competition: On the Existence of Equilibrium," Econometrica, Econometric Society, vol. 59(1), pages 25-59, January.
  5. Amil Petrin, 2002. "Quantifying the Benefits of New Products: The Case of the Minivan," Journal of Political Economy, University of Chicago Press, vol. 110(4), pages 705-729, August.
  6. repec:tcd:wpaper:tep3 is not listed on IDEAS
  7. J. A. Hausman & W. E. Taylor, 1980. "Panel Data and Unobservable Individual Effects," Working papers 255, Massachusetts Institute of Technology (MIT), Department of Economics.
  8. Aviv Nevo, 2000. "A Practitioner's Guide to Estimation of Random-Coefficients Logit Models of Demand," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 9(4), pages 513-548, December.
  9. Ciara Whelan & Franco Mariuzzo & Patrick P. Walsh, 2005. "Embedding consumer taste for location into a structural model of equilibrium," Working Papers 200503, School of Economics, University College Dublin.
  10. 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.
  11. Pakes, Ariel & Pollard, David, 1989. "Simulation and the Asymptotics of Optimization Estimators," Econometrica, Econometric Society, vol. 57(5), pages 1027-57, September.
  12. Franco Mariuzzo & Patrick Paul Walsh & Ciara Whelan, 2003. "Firm Size and Market Power in Carbonated Soft Drinks," Review of Industrial Organization, Springer, vol. 23(3_4), pages 283-299, December.
  13. Walsh, Patrick Paul & Whelan, Ciara, 1999. "Modelling Price Dispersion as an Outcome of Competition in the Irish Grocery Market," Journal of Industrial Economics, Wiley Blackwell, vol. 47(3), pages 325-43, September.
  14. 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.
  15. Ivaldi, Marc & Verboven, Frank, 2001. "Quantifying the Effects from Horizontal Mergers in European Competition Policy," CEPR Discussion Papers 2697, C.E.P.R. Discussion Papers.
  16. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-90, July.
  17. Joris Pinkse & Margaret E. Slade & Craig Brett, 2002. "Spatial Price Competition: A Semiparametric Approach," Econometrica, Econometric Society, vol. 70(3), pages 1111-1153, May.
  18. 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.
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