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A Random Coefficients Logit Analysis of the Counterfactual: A Merger and Divestiture in the Australian Cigarette Industry

Vivienne Pham () and David Prentice
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Vivienne Pham: School Economics, La Trobe University

No 2013.04, Working Papers from School of Economics, La Trobe University

Abstract: In this paper we empirically analyse two counterfactual situations facing an antitrust au- thority following the merger of two of the largest international cigarette companies. First we estimate a random coecients model of demand for cigarettes. The implied elasticity of demand for smoking and implied marginal costs are consistent with the independent estimates available. We then use the model to simulate the proposed merger and the partial divesti- ture that was accepted by the Australian antitrust authority. A comparison of the relative price changes predicted by the divestiture simulation with the actual post-divestiture price changes shows that the model is partially successful in predicting the ranking of price changes across companies following the divestiture. This suggests structural econometric analysis us- ing a random coecients model can provide information for antitrust authorities assessing the implications of a potential merger and partial divestiture.

Keywords: mergers; divestitures; cigarettes; tobacco; anti-trust policy; competition policy (search for similar items in EconPapers)
JEL-codes: L41 L66 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2013
New Economics Papers: this item is included in nep-com and nep-for
Note: ISSN-1837-2198
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http://www.latrobe.edu.au/__data/assets/pdf_file/0003/318711/2013.04.pdf first version, 2013.04.pdf (application/pdf)
http://www.latrobe.edu.au/__data/assets/pdf_file/0003/318711/2013.04.pdf Revised version, 2013.04.pdf (application/pdf)

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