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Merger control in differentiated product industries

Franco Mariuzzo, Patrick Walsh () and Ciara Whelan ()

No 200508, Working Papers from School of Economics, University College Dublin

Abstract: Thresholds defined on the level and change in the HHI (Herfindahl-Hirschmann Index) applied to market shares seem to be the main instrument to select notified mergers for investigation in both the EU and US. We question the use of such a selection rule in differentiated products industries. We propose the use of a structural approach to apply HHI thresholds based on profit shares rather than market shares. We illustrate our point using product data for Retail Carbonated Soft Drinks (Price, Market Share and Characteristics). We estimate company (product) mark-ups consistent with a structural model of equilibrium, using demand primitives from a Nested Logit model and a Random Coefficient model. We provide an example where the HHI thresholds based on profit shares identify potentially damaging mergers not captured by applying thresholds to output shares, or conversely, identify mergers of no concern that would be selected on the basis of output shares.

Keywords: Market Shares; Market power; Differentiated products industries; Merger screening; Consolidation and merger of corporations; Product differentiation; Market share (search for similar items in EconPapers)
JEL-codes: K2 L11 L25 L40 L81 (search for similar items in EconPapers)
Date: 2005-05
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Downloads: (external link)
http://hdl.handle.net/10197/948 First version, 2005 (application/pdf)

Related works:
Working Paper: Merger control in differentiated product industries (2006) Downloads
Working Paper: EU Merger Control in Differentiated Product Industries (2004) Downloads
Working Paper: EU merger control in differentiated product industries (2004) Downloads
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