Pass-Through Rates and the Price Effects of Mergers

23 Pages Posted: 13 Jul 2001

See all articles by Luke M. Froeb

Luke M. Froeb

Vanderbilt University - Owen Graduate School of Management

Steven Tschantz

Vanderbilt University - Department of Mathematics

Gregory J. Werden

Independent; George Mason University - Mercatus Center

Date Written: July 2001

Abstract

We investigate the relationship between the price effects of mergers in Bertrand oligopoly and the rates at which merger synergies are passed through to consumers in the form of lower prices. Our main conclusion is that pass-through rates and price effects are closely related. In particular, when a merger would cause large price increases absent synergies, the pass-through rate is high. This close relationship implies that pass-through and price effects should not be addressed independently in any phase of a merger investigation. We show that in a leading merger case, the low estimated pass-through rate and the relatively large predicted merger effect most likely were inconsistent.

Keywords: Pass-through, merger, efficiencies, Bertrand, antitrust

JEL Classification: C72, L41

Suggested Citation

Froeb, Luke M. and Tschantz, Steven T. and Werden, Gregory J., Pass-Through Rates and the Price Effects of Mergers (July 2001). Available at SSRN: https://ssrn.com/abstract=274848 or http://dx.doi.org/10.2139/ssrn.274848

Luke M. Froeb (Contact Author)

Vanderbilt University - Owen Graduate School of Management ( email )

401 21st Avenue South
Nashville, TN 37203
United States
615-322-9057 (Phone)
615-343-7177 (Fax)

Steven T. Tschantz

Vanderbilt University - Department of Mathematics ( email )

Nashville, TN 37240
United States

Gregory J. Werden

Independent ( email )

George Mason University - Mercatus Center ( email )

3434 Washington Blvd., 4th Floor
Arlington, VA 22201
United States

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