Merger control in differentiated product industries

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Title: Merger control in differentiated product industries
Authors: Mariuzzo, Franco
Walsh, Patrick P.
Whelan, Ciara
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Date: May-2005
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
Copyright (published version): UCD School of Economics 2005
Keywords: Market SharesMarket powerDifferentiated products industriesMerger screening
Subject LCSH: Consolidation and merger of corporations
Product differentiation
Market share
Language: en
Status of Item: Not peer reviewed
Appears in Collections:Politics and International Relations Research Collection
Geary Institute Research Collection
Economics Working Papers & Policy Papers

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