Estimating the Effect of Mergers by Exploiting a Natural Experiment in Cross-Section Data

Abstract:     
Mergers in the car rental industry resulted in markets with the same number of brands having different numbers of brand-owners. Consequently, data at a single point in time exhibit between-market variation like the variation over time associated with mergers. We construct an estimator isolating between-market variation, and the predicted price effects of mergers are roughly what simple theoretical models predict. For markets with few brands, we predict significantly greater effects than a prior study using a structural model. For example, in markets with three brands, each separately owned, the merger of two brand-owners increases average prices 7%.

Number of Pages in PDF File: 15

Keywords: horizontal mergers, natural experiments, entry, rental car industry

JEL Classification: L11, L40, L91

working papers series