Estimating the Effect of Mergers by Exploiting a Natural Experiment in Cross-Section Data
Michael J. Doane
Competition Economics LLC
Vanderbilt University - Strategy and Business Economics
Gregory J. Werden
U.S. Department of Justice - Antitrust Division
David M. Zimmer
Western Kentucky University - Department of Economics
January 14, 2013
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, L91working papers series
Date posted: April 4, 2012 ; Last revised: January 14, 2013
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