Merger Simulation with Brand-Level Margin: Extending PCAIDS with Nests

UC Berkeley Competition Policy Center Working Paper No. CPC03-40

29 Pages Posted: 9 Feb 2004  

Roy J. Epstein

Independent

Daniel L. Rubinfeld

University of California at Berkeley - School of Law; National Bureau of Economic Research (NBER); NYU Law School

Date Written: August 20, 2003

Abstract

We present a method to calibrate empirically the demand parameters in a merger simulation model by using brand-level profit margin data. While the approach can be generalized, we develop these ideas within an articular framework - the PCAIDS (proportionality-calibrated AIDS) model. We show that the brand-level margins effectively define product "nests" (products that are especially close substitutes) and substantially increase the flexibility of PCAIDS for modeling critical own- and cross-price elasticities. The model is particularly valuable for transactions at the wholesale level (where scanner data do not exist) and for geographic markets that span national borders (where comparable data may not be available), since other methods to derive elasticities, particularly those based on econometric estimation, may not be possible or may not be reliable.

Keywords: merger simulation, unilateral effects

JEL Classification: L13, L4

Suggested Citation

Epstein, Roy J. and Rubinfeld, Daniel L., Merger Simulation with Brand-Level Margin: Extending PCAIDS with Nests (August 20, 2003). UC Berkeley Competition Policy Center Working Paper No. CPC03-40. Available at SSRN: https://ssrn.com/abstract=495568 or http://dx.doi.org/10.2139/ssrn.495568

Roy J. Epstein (Contact Author)

Independent ( email )

34 Cushing Ave.
Belmont, 02478

Daniel L. Rubinfeld

University of California at Berkeley - School of Law ( email )

215 Boalt Hall
Berkeley, CA 94720-7200
United States
(510) 642-1959 (Phone)
(510) 642-3767 (Fax)

HOME PAGE: http://www.law.berkeley.edu/faculty/rubinfeldd

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

NYU Law School ( email )

44 West Fourth Street, Suite 9-53
New York, NY 10012-1126
United States
(212) 992 8834 (Phone)

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