American Economic Journal:
Microeconomics
ISSN 1945-7669 (Print) | ISSN 1945-7685 (Online)
The First-Order Approach to Merger Analysis
American Economic Journal: Microeconomics
vol. 5,
no. 4, November 2013
(pp. 188–218)
Abstract
Using information local to the premerger equilibrium, we derive approximations of the expected changes in prices and welfare generated by a merger. We extend the pricing pressure approach of recent work to allow for non-Bertrand conduct, adjusting the diversion ratio and incorporating the change in anticipated accommodation. To convert pricing pressures into quantitative estimates of price changes, we multiply them by the merger pass-through matrix, which (under conditions we specify) is approximated by the premerger rate at which cost increases are passed through to prices. Weighting the price changes by quantities gives the change in consumer surplus.Citation
Jaffe, Sonia, and E. Glen Weyl. 2013. "The First-Order Approach to Merger Analysis." American Economic Journal: Microeconomics 5 (4): 188–218. DOI: 10.1257/mic.5.4.188Additional Materials
JEL 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