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Estimating Dynamic Merger Effciencies with an Application to the 1997 Boeing-McDonnell Douglas Merger

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  • Zhao, Wei
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    I evaluate the welfare effects of the 1997 merger between Boeing and McDonnell Douglas in the medium-sized, wide-bodied aircraft industry. I develop an empirical model of multi-product firms, allowing for both learning-by-doing and product innovation in a dynamic game to quantify merger efficiency. Merger efficiency from learning-by-doing is then disentangled from both the effects of innovation and market power. The results show that the primary benefits from the Boeing-McDonnell Douglas merger come from accelerated learning-by-doing. Taking account of all static and dynamic effects, net consumer surplus is found to have increased by as much as $1.57 billion. In contrast, a static model ignoring learning-by-doing and innovation predicts a consumer loss of approximately $20 billion. These results show that ignoring dynamic effects can lead to biased results and erroneous policy decisions regarding the welfare effects of proposed mergers.

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    File URL: https://mpra.ub.uni-muenchen.de/63184/1/MPRA_paper_63184.pdf
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    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 63184.

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    Date of creation: 19 Oct 2013
    Date of revision: 11 Sep 2014
    Handle: RePEc:pra:mprapa:63184
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