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Does Merger Simulation Work? A 'Natural Experiment' in the Swedish Analgesics Market

39 Pages Posted: 28 Sep 2012  

Jonas Björnerstedt

affiliation not provided to SSRN

Frank Verboven

KU Leuven - Faculty of Business and Economics (FEB)

Date Written: July 2012

Abstract

We exploit a natural experiment associated with a large merger in the Swedish market for analgesics (painkillers). We confront the predictions from a merger simulation study, as conducted during the investigation, with the actual merger effects over a two-year comparison window. The merger simulation model is based on a constant expenditures specification for the nested logit model (as an alternative to the typical unit demand specification). The model predicts a large price increase of 34% by the merging firms, because there is strong market segmentation and the merging firms are the only competitors in the largest segment. The actual price increase after the merger is of a similar order of magnitude: +42% in absolute terms and +35% relative to the

Keywords: analgesics, constant expenditures nested logit, ex post merger analysis, merger simulation

JEL Classification: L40, L41

Suggested Citation

Björnerstedt, Jonas and Verboven, Frank, Does Merger Simulation Work? A 'Natural Experiment' in the Swedish Analgesics Market (July 2012). CEPR Discussion Paper No. DP9027. Available at SSRN: https://ssrn.com/abstract=2153459

Jonas Björnerstedt (Contact Author)

affiliation not provided to SSRN ( email )

No Address Available

Frank Verboven

KU Leuven - Faculty of Business and Economics (FEB) ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

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