Merger simulation based on survey–generated diversion ratios

Wen-Jen Tsay and Wei-Min Hu

European Competition Journal, 2022, vol. 18, issue 2, 249-264

Abstract: This research modifies the well-known three-stage merger simulation procedure of Nevo by replacing demand analysis in the first stage with survey-generated diversion ratios and own-price elasticities. We also provide a post-merger price formula under the scenario of two firms competing in the same relevant market and operating independently of the other firms in the relevant market. The same scenario is considered in upward pricing pressure (UPP) and is commonly observed in most filing cases for mergers. Since the formula is exact and requires only data on each firm's price and own-price elasticity and the diversion ratios between these two firms, our approach's implementation cost is almost identical to that used in the critical loss analysis, the diversion ratio, and UPP. The formula thus is informative and convenient for competition enforcement when dealing with merger cases.

Date: 2022
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DOI: 10.1080/17441056.2021.1984012

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