Antitrust Market Definition and the Sensitivity of the Diversion Ratio

Lydia Cheung ()
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Lydia Cheung: School of Economics, Faculty of Business and Law, Auckland University of Technology

No 2016-02, Working Papers from Auckland University of Technology, Department of Economics

Abstract: The diversion ratio is a key ingredient for merger analysis, as mentioned in the new Horizontal Merger Guidelines (2010) in the U.S. and similar documents abroad. It is a measure of substitutability between merging goods, which determines the potential for price increase post-merger. There is little existing research on how the diversion ratio is to be estimated. This paper is the first one to explore estimation issues through standard demand estimation techniques and how changes in the antitrust market definition affect the resultant diversion ratios. I use random draws of supermarket products from a supermarket dataset to show that the estimated diversion ratios are, in fact, not greatly affected by market definition. They have the same magnitude as baseline estimates and the first significant figures vary within a small range.

Keywords: horizontal merger; unilateral price effect; difierentiated products; upward pricing pressure; diversion ratio; elasticity (search for similar items in EconPapers)
JEL-codes: D12 L11 L13 L41 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2016-02
New Economics Papers: this item is included in nep-com and nep-ind
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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