The Effects of Merger Efficiencies on Consumers of Differentiated Products

European Competition Journal, Vol. 1, No. 2, October 2005

25 Pages Posted: 22 Oct 2006  

Gregory J. Werden

U.S. Department of Justice - Antitrust Division

Luke Froeb

Vanderbilt University - Strategy and Business Economics

Steven Tschantz

Vanderbilt University - Department of Mathematics

Abstract

In differentiated products industries, the extent of the pass through of merger-specific marginal-cost reductions is determined largely by the curvature of demand and idiosyncratic properties of particular functional forms for demand. Thus, addressing pass through as a separate and distinct component of merger analysis is likely to be unproductive. An alternative approach is to determine whether merger-specific marginal-cost reductions are sufficient to offset entirely the price-increasing effects of a merger. In addition, pass-through rates are closely linked to the price-increasing effects of mergers; demand properties that lead to large price increases from mergers absent cost reductions also lead to high pass-through rates. This implies the existence of simple and practical consistency checks on price increase and pass-through predictions.

Keywords: mergers, efficiencies, pass through

JEL Classification: L41, L13, D43

Suggested Citation

Werden, Gregory J. and Froeb, Luke and Tschantz, Steven, The Effects of Merger Efficiencies on Consumers of Differentiated Products. Available at SSRN: https://ssrn.com/abstract=939056

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 - Strategy and Business Economics ( email )

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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