Ex-Post Merger Review and Divestitures

Abstract

We provide an ex-post analysis of the 2001 merger between the two largest brewers on the Swedish beer market. Difference-in-difference estimates suggest low price effects of the merger. This is well matched by a merger simulation, using a random coefficient logit model, which predicts price increases of only 0.4 percent. Knowledge of the retailers markup rules allows us to discard retailer behavior as an explanation for the pricing patterns. We further establish that without the divestitures required by the competition authorities, the price increase would have more than doubled to 1 percent (even though still low in absolute terms).JEL Classification: K21, L11, L41, L66.

A Random Coefficients Logit Analysis of the Counterfactual: A Merger and Divestiture in the Australian Cigarette Industry

“…Finally, we compare our results to those of Pham and Prentice (2010) and Friberg and Romahn (2012). The pattern of predictions at the company level in Pham and Prentice (2010) are fairly similar in that the largest changes were predicted for BATA and that Philip Morris and ITA would experience smaller changes or even price cuts.…”

“…It is not straightforward to compare at the brand level because of the dierent levels of aggregation in estimation and reporting. Friberg and Romahn (2012) consider the Swedish beer market which is quite dierent to the Australian cigarette market.…”

“…The random coecient logit model is used as it is the main dierentiated products demand model used for estimating demand (Ackerberg et al, 2007), including for cigarettes (Ciliberto and Kumino, 2010). There are now several assessments of its performance in merger simulation, such as Peters (2006) and Weinberg and Hosken (forthcoming) but despite divestitures being a common tool of competition of competition authorities, Friberg and Romahn (2012) is the only other study assessing its performance in simulating divestitures.…”

Ex-Post Merger Evaluation in the UK Retail Market for Books

“…See Weinberg (2008) and Hunter, Leonard and Olley (2008) for a survey. A growing strand of literature instead follows a structural approach; see Friberg and Romahn (2012), Skrainka (2012), and Björnerstedt and Verboven (2012). 8 A similar problem is faced by Ashenfelter et al (2013), who analyze the price effects of a merger between two appliance manufacturers in the US.…”

“…Indeed, we employ a similar methodology in the assessment of the effects of another merger between two retailers of videogames (GAME Group plc and Game Station) in the UK (Aguzzoni et al, 2011). 9 As Friberg and Romahn (2012) point out, another challenge in the application of such methodology is the difficulty of properly identifying before-and after-merger periods. In our setting, however, the definition of the timing of the merger does not pose particular problems, especially because the merger was cleared without any remedies.…”