Churn Versus Diversion in Antitrust: An Illustrative Model

20 Pages Posted: 12 Sep 2016

See all articles by Yongmin Chen

Yongmin Chen

University of Colorado at Boulder - Department of Economics

Marius Schwartz

Georgetown University

Date Written: October 2016

Abstract

An important question in horizontal merger analysis is what share of a firm's lost output from a unilateral price increase will divert to its merger partner. This ‘diversion ratio’ is often estimated using data on customer switching from a firm to its rivals (‘churn’). We use a tractable oligopoly model to investigate the potential biases of such estimates, depending on what caused the churn: shifts in quality or marginal cost of the firm or of a rival; or demand‐side shifts due to changed circumstances or learning about product attributes. With demand‐side shifts, churn can be greater between more distant competitors.

Suggested Citation

Chen, Yongmin and Schwartz, Marius, Churn Versus Diversion in Antitrust: An Illustrative Model (October 2016). Economica, Vol. 83, Issue 332, pp. 564-583, 2016. Available at SSRN: https://ssrn.com/abstract=2837131 or http://dx.doi.org/10.1111/ecca.12207

Yongmin Chen (Contact Author)

University of Colorado at Boulder - Department of Economics ( email )

Campus Box 256
Boulder, CO 80309-0256
United States
303-492-8736 (Phone)
303-492-8960 (Fax)

Marius Schwartz

Georgetown University ( email )

Washington, DC 20057
United States
202-678-6112 (Phone)

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