We analyze a large merger in the Swedish market for analgesics (painkillers). The merging firms raised prices by 40 percent, and some outsiders raised prices by more than 10 percent. We confront these changes with predictions from a merger simulation model. With basic supply side assumptions, the models correctly or moderately underpredict the merging firms' price increase. However, they predict a larger price increase for the smaller firm, which was not the case in practice, and they underpredict the outsiders' responses. We consider several supply side explanations: a plausible cost increase after the merger and the possibility of partial collusion.
Björnerstedt, Jonas, and Frank Verboven.
"Does Merger Simulation Work? Evidence from the Swedish Analgesics Market."
American Economic Journal: Applied Economics,
Computational Techniques; Simulation Modeling
Firm Behavior: Empirical Analysis
Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance
Production, Pricing, and Market Structure; Size Distribution of Firms
Firm Performance: Size, Diversification, and Scope
Chemicals; Plastics; Rubber; Drugs; Biotechnology