Merger Analysis with IIA Demand and Type Aggregation

Volker Nocke and Nicolas Schutz

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: We propose a framework for merger analysis with multiproduct firms under generalized CES (GCES) and generalized multinomial logit (GMNL) demand. Despite allowing for arbitrary firm and product heterogeneity, we obtain the type aggregation property: All relevant information about a firm's product portfolio can be summarized in a uni-dimensional sufficient statistic, the firm's type. Indeed, GCES and GMNL are shown to be the only IIA demand systems giving rise to that property. Relative to standard CES and MNL demand, our generalization implies that prices, locally, can be strategic complements or substitutes, depending on the local behavior of the curvature of indirect utility. In turn, this distinction is shown to determine whether competition authorities should be more or less strict on mergers in more competitive industries. We obtain further results on the static and dynamic consumer surplus effects of mergers, the aggregate surplus and external effects of mergers, and on the relationship between the market power effect of a merger and the merger-induced change in the Herfindahl index.

Keywords: multiproduct firms; aggregative game; oligopoly pricing; IIA demand; type aggregation; horizontal merger; Herfindahl index; generalized CES demand; generalized multinomial logit demand (search for similar items in EconPapers)
JEL-codes: D43 L13 L40 (search for similar items in EconPapers)
Pages: 64
Date: 2023-09
New Economics Papers: this item is included in nep-com, nep-gth and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.crctr224.de/research/discussion-papers/archive/dp459 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bon:boncrc:crctr224_2023_459

Access Statistics for this paper

More papers in CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany Kaiserstr. 1, 53113 Bonn , Germany.
Bibliographic data for series maintained by CRC Office ().