Differential Merger Effects: The Case of the Personal Computer Industry

47 Pages Posted: 11 Jul 2008

See all articles by Christos Genakos

Christos Genakos

Cambridge University; Centre for Economic Performance (CEP)

Date Written: December 2004

Abstract

This paper examines how information on the purchasing patterns of different customer segments can be used to more accurately evaluate the economic impact of mergers. Using a detailed dataset for the leading manufacturers in the US during the late nineties, I evaluate the welfare effects of the biggest ($25 billion) merger in the history of the PC industry between Hewlett-Packard and Compaq. I follow a two-step empirical strategy. In the first step, I estimate a demand system employing a random coefficients discrete choice model. In the second step, I simulate the postmerger oligopolistic equilibrium and compute the welfare effects. I extend previous research by analysing the merger effects not only for the whole market but also for three customer segments (home, small business and large business). Results from the demand estimation and merger analysis reveal that: (i) the random coefficients model provides a more realistic market picture than simpler models, (ii) despite being the world's second and third largest PC manufacturers, the merged HP-Compaq entity would not raise postmerger prices significantly, (iii) there is considerable heterogeneity in preferences across segments that persists over time, and (iv) the merger effects differ considerably across segments.

JEL Classification: D12, G34, L41, L63

Suggested Citation

Genakos, Christos, Differential Merger Effects: The Case of the Personal Computer Industry (December 2004). LSE STICERD Research Paper No. EI39. Available at SSRN: https://ssrn.com/abstract=1158316

Christos Genakos (Contact Author)

Cambridge University ( email )

Austin Robinson Building
Sidgwick Avenue
Cambridge, CB3 9DD
United Kingdom

Centre for Economic Performance (CEP) ( email )

Houghton Street
London WC2A 2AE
United Kingdom

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