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Merger simulations with observed diversion ratios

Author

Listed:
  • Mathiesen, Lars

    (Dept. of Economics, Norwegian School of Economics and Business Administration)

  • Nilsen, Øivind Anti

    (Dept. of Economics, Norwegian School of Economics and Business Administration)

  • Sørgard, Lars

    (Dept. of Economics, Norwegian School of Economics and Business Administration)

Abstract

A common approach to merger simulations used in antitrust cases is to calibrate demand from market shares and a few additional parameters. When the products involved in the merger case are differentiated along several dimensions, the resulting diversion ratios may be very different from those based upon market shares. This again may affect the predicted post-merger price effects. This article shows how merger simulation can be improved by using observed diversion ratios. To illustrate the effects of this approach we use diversion ratios from a local grocery market in Norway. In this case diversions from the acquired to the acquiring stores were considerably smaller than suggested by market shares, and the predicted average price increase from the acquisition was 40 % lower using this model rather than a model based upon market shares. This analysis also suggests that even a subset of observed diversion ratios may significantly change the prediction from a merger simulation based upon market shares.

Suggested Citation

  • Mathiesen, Lars & Nilsen, Øivind Anti & Sørgard, Lars, 2010. "Merger simulations with observed diversion ratios," Discussion Paper Series in Economics 27/2010, Norwegian School of Economics, Department of Economics.
    • Handle: RePEc:hhs:nhheco:2010_027
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    Cited by:

    1. Mathiesen, Lars & Nilsen, Øivind Anti & Sørgard, Lars, 2011. "Merger simulations with observed diversion ratios," International Review of Law and Economics, Elsevier, vol. 31(2), pages 83-91, June.
    2. Martino De Stefano & Michael A. Salinger, 2025. "A Simultaneous Moves Approach to the Complicated Simple Economics of Vertical Mergers," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 66(2), pages 115-139, February.

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    Keywords

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    JEL classification:

    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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