Challenges in Merger Simulation Analysis
- (pp. 56-59)
Abstract
In this paper, we share our experience with merger simulations using a Random Coefficient Logit model on the demand side and assuming a static Bertrand game on the supply side. Drawing largely from our work in Knittel and Metaxoglou (2008), we show that different demand estimates obtained from different combinations of optimization algorithms and starting values lead to substantial differences in post-merger market outcomes using metrics such as industry profits, and change in consumer welfare and prices.Citation
Knittel, Christopher R., and Konstantinos Metaxoglou. 2011. "Challenges in Merger Simulation Analysis." American Economic Review, 101 (3): 56-59. DOI: 10.1257/aer.101.3.56JEL Classification
- D43 Market Structure and Pricing: Oligopoly and Other Forms of Market Imperfection
- G34 Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance
- L11 Production, Pricing, and Market Structure; Size Distribution of Firms
- L13 Oligopoly and Other Imperfect Markets
- L25 Firm Performance: Size, Diversification, and Scope