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Does Merger Simulation Work? A "Natural Experiment" in the Swedish Analgesics Market Market

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  • Verboven, Frank
  • Björnerstedt, Jonas

Abstract

We exploit a natural experiment associated with a large merger in the Swedish market for analgesics (painkillers). We confront the predictions from a merger simulation study, as conducted during the investigation, with the actual merger effects over a two-year comparison window. The merger simulation model is based on a constant expenditures specification for the nested logit model (as an alternative to the typical unit demand specification). The model predicts a large price increase of 34% by the merging firms, because there is strong market segmentation and the merging firms are the only competitors in the largest segment. The actual price increase after the merger is of a similar order of magnitude: +42% in absolute terms and +35% relative to the

Suggested Citation

  • Verboven, Frank & Björnerstedt, Jonas, 2012. "Does Merger Simulation Work? A "Natural Experiment" in the Swedish Analgesics Market Market," CEPR Discussion Papers 9027, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:9027
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    Cited by:

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    3. David P. Byrne, 2015. "Testing Models Of Differentiated Products Markets: Consolidation In The Cable Tv Industry," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 56(3), pages 805-850, August.
    4. Zulehner, Christine & Gugler, Klaus Peter & Weichselbaumer, Michael, 2015. "Analysis of mergers in first-price auctions," CEPR Discussion Papers 10799, C.E.P.R. Discussion Papers.

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    More about this item

    Keywords

    Analgesics; Constant expenditures nested logit; Ex post merger analysis; Merger simulation;
    All these keywords.

    JEL classification:

    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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