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Download the Paper (394 K, PDF file) - August 23, 2003 Tell a colleague about it. Printing Tips: Select 'print as image' in the Acrobat print dialog if you have trouble printing.

ABSTRACT:
We present a method to calibrate empirically the demand parameters in a merger simulation model by using brand-level profit margin data. While the approach can be generalized, we develop these ideas within a particular framework — the PCAIDS (proportionality-calibrated AIDS) model. We show that the brand-level margins effectively define product “nests” (products that are especially close substitutes) and substantially increase the flexibility of PCAIDS for modeling critical own- and cross-price elasticities. The model is particularly valuable for transactions at the wholesale level (where scanner data do not exist) and for geographic markets that span national borders (where comparable data may not be available), since other methods to derive elasticities, particularly those based on econometric estimation, may not be possible or may not be reliable.

SUGGESTED CITATION:
Roy J. Epstein and Daniel L. Rubinfeld, "Merger Simulation with Brand-Level Margin Data: Extending PCAIDS with Nests" (August 23, 2003). Competition Policy Center. Paper CPC03-040.
http://repositories.cdlib.org/iber/cpc/CPC03-040