An empirical Analysis of the Counter-factual: A Merger and Divestiture in the Australian Cigarette Industry
In this paper we empirically analyse two counter-factual situations facing an anti-trust authority following the merger of two of the largest international cigarette companies. First we estimate a nested logit model of demand for cigarettes. The implied elasticity of demand for smoking and implied marginal costs are both broadly consistent with the limited independent estimates available. We then use the model to simulate the proposed merger and the partial divestiture that was accepted by the Australian anti-trust authority. A comparison of the relative price changes predicted by the divestiture simulation with the actual post-divestiture price changes shows the model successfully anticipated the behaviour of the divested brands. This suggests structural econometric analysis using a nested logit may be usefully utilised by anti-trust authorities to assess the welfare implications of proposed mergers and partial divestitures.
|Date of creation:||Nov 2010|
|Contact details of provider:|| Web page: http://www.latrobe.edu.au/economics|
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Oliver Budzinski & Isabel Ruhmer, 2008.
"Merger Simulation in Competition Policy: A Survey,"
MAGKS Papers on Economics
200807, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
- Nevo, Aviv, 2001.
"Measuring Market Power in the Ready-to-Eat Cereal Industry,"
Econometric Society, vol. 69(2), pages 307-342, March.
- 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.
- Aviv Nevo, 1998. "Measuring Market Power in the Ready-to-Eat Cereal Industry," NBER Working Papers 6387, National Bureau of Economic Research, Inc.
- Aviv Nevo, 2003. "Measuring Market Power in the Ready-to-Eat Cereal Industry," Microeconomics 0303006, EconWPA.
- Nevo, Aviv, 1998. "Measuring Market Power in the Ready-To-Eat Cereal Industry," Research Reports 25164, University of Connecticut, Food Marketing Policy Center.
- Nevo, Aviv, 1998. "Measuring Market Power in the Ready-To-Eat Cereal Industry," Food Marketing Policy Center Research Reports 037, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
- D. S. Poskitt & C. L. Skeels, 2009.
"Assessing the magnitude of the concentration parameter in a simultaneous equations model,"
Royal Economic Society, vol. 12(1), pages 26-44, 03.
- D. S. Poskitt & C. L. Skeels, 2004. "Assessing the Magnitude of the Concentration Parameter in a Simultaneous Equations Model," Monash Econometrics and Business Statistics Working Papers 29/04, Monash University, Department of Econometrics and Business Statistics.
- Daniel A. Ackerberg & Marc Rysman, 2005.
"Unobserved Product Differentiation in Discrete-Choice Models: Estimating Price Elasticities and Welfare Effects,"
RAND Journal of Economics,
The RAND Corporation, vol. 36(4), pages 771-788, Winter.
- Daniel A. Ackerberg & Marc Rysman, 2002. "Unobserved Product Differentiation in Discrete Choice Models: Estimating Price Elasticities and Welfare Effects," NBER Working Papers 8798, National Bureau of Economic Research, Inc.
- Christopher R. Knittel & Konstantinos Metaxoglou, 2008. "Estimation of Random Coefficient Demand Models: Challenges, Difficulties and Warnings," NBER Working Papers 14080, National Bureau of Economic Research, Inc.
- Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-890, July.
- Jith Jayaratne & Carl Shapiro, 2000. "Simulating Partial Asset Divestitures to 'Fix' Mergers," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 7(2), pages 179-200.
- Jean-Pierre H. Dubé & Jeremy T. Fox & Che-Lin Su, 2009. "Improving the Numerical Performance of BLP Static and Dynamic Discrete Choice Random Coefficients Demand Estimation," NBER Working Papers 14991, National Bureau of Economic Research, Inc.
- Aguirregabiria, Victor & Nevo, Aviv, 2010.
"Recent developments in empirical IO: dynamic demand and dynamic games,"
27814, University Library of Munich, Germany.
- Victor Aguirregabiria & Victor Aguirregabiria & Aviv Nevo & Aviv Nevo, 2010. "Recent Developments in Empirical IO: Dynamic Demand and Dynamic Games," Working Papers tecipa-419, University of Toronto, Department of Economics.
- Keane, Michael P., 2010. "Structural vs. atheoretic approaches to econometrics," Journal of Econometrics, Elsevier, vol. 156(1), pages 3-20, May.
- Peters, Craig, 2006. "Evaluating the Performance of Merger Simulation: Evidence from the U.S. Airline Industry," Journal of Law and Economics, University of Chicago Press, vol. 49(2), pages 627-649, October.
- Dongling Huang & Christian Rojas & Frank Bass, 2008. "WHAT HAPPENS WHEN DEMAND IS ESTIMATED WITH A MISSPECIFIED MODEL? -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 56(4), pages 809-839, December.
- Timothy Richards, 2007.
"A nested logit model of strategic promotion,"
Quantitative Marketing and Economics (QME),
Springer, vol. 5(1), pages 63-91, March.
- Cardell, N. Scott, 1997. "Variance Components Structures for the Extreme-Value and Logistic Distributions with Application to Models of Heterogeneity," Econometric Theory, Cambridge University Press, vol. 13(02), pages 185-213, April.
- Ackerberg, Daniel & Lanier Benkard, C. & Berry, Steven & Pakes, Ariel, 2007. "Econometric Tools for Analyzing Market Outcomes," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 6, chapter 63 Elsevier.
- Chiou, Lesley, 2008. "The timing of movie releases: Evidence from the home video industry," International Journal of Industrial Organization, Elsevier, vol. 26(5), pages 1059-1073, September.
- Bardsley, P. & Olekans, N., 1998.
"Cigarette and Tobacco Consumption: Have Anti-Smoking Policies Made a Difference?,"
Department of Economics - Working Papers Series
615, The University of Melbourne.
- Bardsley, Peter & Olekalns, Nilss, 1999. "Cigarette and Tobacco Consumption: Have Anti-smoking Policies Made a Difference?," The Economic Record, The Economic Society of Australia, vol. 75(230), pages 225-40, September.
- John Tauras & Richard Peck & Frank Chaloupka, 2006. "The Role of Retail Prices and Promotions in Determining Cigarette Brand Market Shares," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 28(3), pages 253-284, 05.
- Aviv Nevo, 2000. "Mergers with Differentiated Products: The Case of the Ready-to-Eat Cereal Industry," RAND Journal of Economics, The RAND Corporation, vol. 31(3), pages 395-421, Autumn.
- Igal Hendel, 1999. "Estimating Multiple-Discrete Choice Models: An Application to Computerization Returns," Review of Economic Studies, Oxford University Press, vol. 66(2), pages 423-446.
When requesting a correction, please mention this item's handle: RePEc:ltr:wpaper:2010.08. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Stephen Scoglio)
If references are entirely missing, you can add them using this form.