Discussion Paper Series in Economics, Department of Economics, Norwegian School of Economics (NHH)
Merger simulations with observed diversion ratios.
(), Øivind Anti Nilsen
() and Lars Sørgard
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
Keywords: Merger simulation; diversion ratio; asymmetric differentiation; merger policy.; (follow links to similar papers)
JEL-Codes: K21; L11; L41; (follow links to similar papers)
31 pages, September 30, 2010
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