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Download the Paper (247 K, PDF file) - November 1, 1997 Tell a colleague about it. Printing Tips: Select 'print as image' in the Acrobat print dialog if you have trouble printing.

ABSTRACT:
Traditional merger analysis, based on market definition and use of concentration measures to infer potential anti-competitive effects, is problematic and difficult to implement when evaluating mergers in industries with differentiated products. This paper discusses an alternative which consists of a front-end estimation of demand and back-end use of a model of post-merger conduct to simulate the competitive effects of a merger. I discuss and demonstrate the use of different methods of estimating demand. Furthermore, I show how the estimated demand parameters can be used to compute the post-merger price equilibrium (rather than just an approximation to it) and changes in welfare. The methodology is applied to two recent mergers and two hypothetical mergers in the ready-to-eat cereal industry. The results clearly demonstrate the importance of the model used in front-end estimation and the computation of equilibrium in determining the competitive effects of a merger.

SUGGESTED CITATION:
Aviv Nevo, "Mergers with Differentiated Products: The Case of Ready-to-Eat Cereal" (November 1, 1997). Competition Policy Center. Paper CPC99-002.
http://repositories.cdlib.org/iber/cpc/CPC99-002