Merger Simulation based on Survey–Generated Diversion Ratios

16 Pages Posted: 30 Nov 2020 Last revised: 27 Aug 2021

See all articles by Wen-Jen Tsay

Wen-Jen Tsay

Academia Sinica - Institute of Economics

Wei‐Min Hu

National Chengchi University (NCCU)

Date Written: September 9, 2020

Abstract

This research modifies the well-known three-stage merger simulation procedure of Nevo (2000) by replacing demand analysis in the first stage with survey-generated diversion ratios and own-price elasticities. We also provide a post-merger price formula under the scenario of two firms competing in the same relevant market and operating independently of the other firms in the relevant market. The same scenario is considered in upward pricing pressure (UPP) and commonly observed in most filing cases for mergers, where the competition enforcers can only have access to these two firms’ data most of the time. Since the formula is exact and requires only data on price and own-price elasticity of each firm and the diversion ratios between these two firms, our approach’s implementation cost is almost identical to that used in critical loss analysis, the diversion ratio, and UPP. The formula thus is informative and convenient for competition enforcement when dealing with merger cases.

Keywords: Merger simulation, upward pricing pressure, diversion ratios

JEL Classification: K21, L1, L4

Suggested Citation

Tsay, Wen-Jen and Hu, Wei‐Min, Merger Simulation based on Survey–Generated Diversion Ratios (September 9, 2020). Available at SSRN: https://ssrn.com/abstract=3723115 or http://dx.doi.org/10.2139/ssrn.3723115

Wen-Jen Tsay (Contact Author)

Academia Sinica - Institute of Economics ( email )

128 Academia Road, Section 2
Nankang
Taipei, 11529
Taiwan

Wei‐Min Hu

National Chengchi University (NCCU) ( email )

No. 64, Chih-Nan Road
Section 2
Wenshan, Taipei, 11623
Taiwan

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