The Effects of Merger Synergies on Consumers of Differentiated Products

20 Pages Posted: 1 Aug 2001

See all articles by Gregory J. Werden

Gregory J. Werden

U.S. Department of Justice - Antitrust Division

Luke M. Froeb

Vanderbilt University - Owen Graduate School of Management

Steven Tschantz

Vanderbilt University - Department of Mathematics

Date Written: 2001

Abstract

Defending a challenged merger on the basis of synergies requires an analysis of the likely pass through to consumers of associated marginal cost reductions. This paper explores the nature and extent of that pass though with differentiated consumer products. Pass-through rates are shown to depend on demand curvature and idiosyncratic properties of particular demand functions. The marginal cost reductions necessary to fully compensate for the price-increasing effects of a merger, however, do not depend on these things. This implies a close relationship between pass-through rates and the price effects of mergers absent synergies and indicates that pass through should not be addressed as a discrete issue in merger cases. Finally, the paper examines ways in which the degree of competition can affect the three pass through effects; contrary to persistent contentions, greater competition easily may result in less pass through.

Suggested Citation

Werden, Gregory J. and Froeb, Luke M. and Tschantz, Steven T., The Effects of Merger Synergies on Consumers of Differentiated Products (2001). Vanderbilt Law and Economics Research Paper No. 01-9. Available at SSRN: https://ssrn.com/abstract=276372 or http://dx.doi.org/10.2139/ssrn.276372

Gregory J. Werden (Contact Author)

U.S. Department of Justice - Antitrust Division ( email )

450 Fifth Street, NW
9th Floor
Washington, DC 20530
United States
202-307-6366 (Phone)

Luke M. Froeb

Vanderbilt University - Owen Graduate School of Management ( email )

401 21st Avenue South
Nashville, TN 37203
United States
615-322-9057 (Phone)
615-343-7177 (Fax)

Steven T. Tschantz

Vanderbilt University - Department of Mathematics ( email )

Nashville, TN 37240
United States

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