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Merger control in differentiated product industries
Date Issued
2005-05
Date Available
2009-03-10T15:28:49Z
Abstract
Thresholds defined on the level and change in the HHI (Herfindahl-Hirschmann Index) applied to market shares seem to be the main instrument to select notified mergers for investigation in both the EU and
US. We question the use of such a selection rule in differentiated products industries. We propose the use of a structural approach to apply HHI thresholds based on profit shares rather than market shares. We
illustrate our point using product data for Retail Carbonated Soft Drinks (Price, Market Share and Characteristics). We estimate company (product) mark-ups consistent with a structural model of equilibrium, using demand primitives from a Nested Logit model and a Random Coefficient
model. We provide an example where the HHI thresholds based on profit shares identify potentially damaging mergers not captured by applying thresholds to output shares, or conversely, identify mergers of no concern
that would be selected on the basis of output shares.
Type of Material
Working Paper
Publisher
University College Dublin. School of Economics
Series
UCD Centre for Economic Research Working Paper Series
WP05/08
Copyright (Published Version)
UCD School of Economics 2005
Classification
K2
L11
L25
L40
L81
Subject – LCSH
Consolidation and merger of corporations
Product differentiation
Market share
Language
English
Status of Item
Not peer reviewed
This item is made available under a Creative Commons License
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