Differential merger effects: the case of the personal computer industry

Christos Genakos

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: This paper examines how information on the purchasing patterns of different customer segments can be used to more accurately evaluate the economic impact of mergers. Using a detailed dataset for the leading manufacturers in the US during the late nineties, I evaluate the welfare effects of the biggest ($25 billion) merger in the history of the PC industry between Hewlett-Packard and Compaq. I follow a two-step empirical strategy. In the first step, I estimate a demand system employing a random coefficients discrete choice model. In the second step, I simulate the postmerger oligopolistic equilibrium and compute the welfare effects. I extend previous research by analysing the merger effects not only for the whole market but also for three customer segments (home, small business and large business). Results from the demand estimation and merger analysis reveal that: (i) the random coefficients model provides a more realistic market picture than simpler models, (ii) despite being the world's second and third largest PC manufacturers, the merged HP-Compaq entity would not raise postmerger prices significantly, (iii) there is considerable heterogeneity in preferences across segments that persists over time, and (iv) the merger effects differ considerably across segments.

Keywords: Computer industry; discrete choice models; merger analysis; product differentiation; random coefficients (search for similar items in EconPapers)
JEL-codes: D12 G34 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2004-12
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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http://eprints.lse.ac.uk/6726/ Open access version. (application/pdf)

Related works:
Working Paper: DIFFERENTIAL MERGER EFFECTS: The Case of the Personal Computer Industry (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:6726

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