Antitrust Policy and Mergers: New Empirical Evidence
Saturday, Jan. 4, 2020 12:30 PM - 2:15 PM (PST)
- Chair: Nancy L. Rose, Massachusetts Institute of Technology
Oligopolistic Price Leadership and Mergers: The United States Beer Industry
AbstractWe study an infinitely-repeated game of oligopolistic price leadership in which one firm, the leader, proposes a supermarkup over Nash-Bertrand prices to a coalition of rivals. The supermarkup is chosen to maximize the leader’s profit subject to incentive compatibility (IC) constraints and in anticipation of fringe firms’ responses. We provide conditions under which the supermarkup can be recovered from aggregate scanner data. We apply the model to the U.S. beer industry over 2005-2011 and estimate that ABI and MillerCoors implemented supermarkups of $0.60 in the wake of the Miller/Coors merger. Counterfactuals demonstrate that IC binds, as profit is greater with even higher supermarkups. The implied equality constraint jointly identifies a discount factor and an antitrust risk coefficient, the remaining structural parameters. We explore the coordinated effects of ABI/Modelo merger. Without divestitures, the merger would have relaxed IC and resulted in substantially higher prices. Finally, we return to the Miller/Coors merger. For many parameterizations, no supermarkup satisfies IC without the merger. Thus, it may be pivotal in generating price leadership.
AbstractThis paper argues incumbent firms may acquire innovative targets solely to discontinue the target’s innovation projects and preempt future competition. We call such acquisitions “killer acquisitions.” We develop a parsimonious model illustrating this phenomenon. Using pharmaceutical industry data, we show that acquired drug projects are less likely to be developed when they overlap with the acquirer’s existing product portfolio, especially when the acquirer’s market power is large due to weak competition or distant patent expiration. Conservative estimates indicate about 6% of acquisitions in our sample are killer acquisitions. These acquisitions disproportionately occur just below thresholds for antitrust scrutiny.
Jan De Loecker,
- L4 - Antitrust Issues and Policies