Win/Loss Data and Consumer Switching Costs: Measuring Diversion Ratios and the Impact of Mergers

43 Pages Posted: 18 Nov 2021 Last revised: 1 Dec 2022

See all articles by Jeff Qiu

Jeff Qiu

U.S. Department of Justice Antitrust Division

Masayuki Sawada

Hitotsubashi University - Institute of Economic Research

Gloria Sheu

Board of Governors of the Federal Reserve System

Date Written: November 6, 2021

Abstract

The diversion ratio is a key input to indicators of merger harm like upward pricing pressure. Measuring the diversion ratio, however, is challenging in the presence of consumer switching costs. We propose an identification strategy for diversion that relies on win/loss data from the two merging firms, a type of data that antitrust authorities can frequently obtain. First, we show that win/loss data from the merging firms and market shares for all firms in two periods are sufficient to identify the diversion ratios between the merging partners. Second, we show that win/loss data from the merging firms are sufficient for partial identification, and we construct a lower bound that provides a good approximation to the diversion ratio when switching costs are high. We demonstrate the performance of our method with numerical simulations and with an application to the Anthem/Cigna merger.

JEL Classification: L00, L40

Suggested Citation

Qiu, Yin Jia (Jeff) and Sawada, Masayuki and Sheu, Gloria, Win/Loss Data and Consumer Switching Costs: Measuring Diversion Ratios and the Impact of Mergers (November 6, 2021). Available at SSRN: https://ssrn.com/abstract=3957662 or http://dx.doi.org/10.2139/ssrn.3957662

Yin Jia (Jeff) Qiu (Contact Author)

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

DC
United States

Masayuki Sawada

Hitotsubashi University - Institute of Economic Research ( email )

2-1 Naka Kunitachi-shi
Tokyo 186-8306
Japan

Gloria Sheu

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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