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Estimating Discrete Games with Many Firms and Many Decisions: An Application to Merger and Product Variety

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  • Fan, Ying
  • Yang, Chenyu

Abstract

This paper presents an estimation method scalable to discrete games with many firms and many decisions. The method is applied to study merger effects on firm entry and product variety in the California retail craft beer market. Simulation results indicate that a merger, where a large brewery acquires several craft breweries, reduces product variety without efficiency gains, but increases variety with an efficiency in reducing fixed costs. Post-merger, firm entry occurs, but fails to counteract the merger’s negative effects on both consumers and total surplus. The fixed cost merger efficiency reduces, but does not reverse, the negative welfare effects.

Suggested Citation

  • Fan, Ying & Yang, Chenyu, 2023. "Estimating Discrete Games with Many Firms and Many Decisions: An Application to Merger and Product Variety," CEPR Discussion Papers 18199, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:18199
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    More about this item

    Keywords

    discrete games; incomplete models;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • 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
    • L66 - Industrial Organization - - Industry Studies: Manufacturing - - - Food; Beverages; Cosmetics; Tobacco

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