Mergers with Differentiated Products: The Case of the Ready-to-Eat Cereal Industry

Aviv Nevo

RAND Journal of Economics, 2000, vol. 31, issue 3, 395-421

Abstract: Traditional merger analysis is difficult to implement when evaluating mergers in industries with differentiated products. I discuss an alternative, which consists of demand estimation and the use of a model of postmerger conduct to simulate the competitive effects of a merger. I estimate a brand-level demand system for ready-to-eat cereal using supermarket scanner data and use the estimates to (1) recover marginal costs, (2) simulate postmerger price equilibria, and (3) compute welfare effects, under a variety of assumptions. The methodology is applied to five mergers, two of which occurred and for which I compare predicted to actual outcomes.

Date: 2000
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