Price-Concentration Analysis in Merger Cases with Differentiated Products

Abstract

This paper considers the empirical assessment of the relationship between prices and number of firms in local markets in geographic or, more generally, characteristic space and its use as evidence in merger cases. It outlines a structural, seminonparametric econometric model of competition in such markets, examines its testable implications in terms of price-concentration relationships, and demonstrates that the model is non-parametrically identified. This general approach to price-concentration analysis in differentiated product markets is illustrated in a small-scale application to cinemas in the UK. The application highlights the main decision points faced by an authority when assessing the weight that can be attached to this type of analysis as evidence. JEL L11, C31

Searching for the Concentration-Price Effect in the German Movie Theater Industry

“…3 Beckert and Mazzarotto (2006) seem to have run into similar difficulties. They excluded the London area, "as it is considered to have very different market features compared to those prevailing in the rest of England" (p. 9).…”

“…Data on entry fees, capacities, and owners was collected using the cinemas' websites. Similarly to Beckert and Mazzarotto (2006), entry fees for a common 6 Saturday 8 p.m. show were identified. In case of differentiated prices depending on the type of seat (e.g., front row, back row, loge), the median price category was chosen.…”

“…Beckert and Mazzarotto (2006) consider the driving time to the next cinema as the appropriate measure. We convert their measure into distance with a rough calculation and find that their maximum radius is some 18 km.…”

“…Comparable studies were done for other countries by Davis (2005) and Beckert and Mazzarotto (2006). Davis (2005) uses data of the US movie theater industry to directly estimate the price as a function of several market and competition variables.…”

“…Davis (2005) uses data of the US movie theater industry to directly estimate the price as a function of several market and competition variables. Beckert and Mazzarotto (2006) develop a model that simultaneously explains market structure and prices, and test it using UK data. We try to confirm their findings, but extend the methodology by modeling optimal pricing behavior in the monopoly case.…”