Demand Side Merger Efficiencies
Charles River Associates, Inc.
Charles River Associates (CRA)
December 30, 2009
Mergers can generate demand side efficiencies that benefit customers in a number of ways, including procurement savings, transaction efficiencies, and quality improvements. We show that per-unit demand side efficiencies and marginal cost efficiencies of the same magnitude have an equivalent impact on the post-merger market in terms of output and welfare. Consequently, there is no reason to distinguish between marginal cost savings and demand side per-unit efficiencies when evaluating the impact of a merger. We demonstrate how various techniques for evaluating the impact of mergers – compensating marginal cost reductions, upward pricing pressure, and merger simulation – can be readily adapted to incorporate demand side as well as supply side efficiencies.
Number of Pages in PDF File: 37
Keywords: horizontal mergers, efficiencies
JEL Classification: K21, L41
Date posted: January 1, 2010