Mergers with Differentiated Products: The Case of the Ready-to-Eat Cereal Industry
Volume: Volume 31, No. 3
Issue: Autumn 2000
Pages: pp. 395-421
Authors: Aviv Nevo
Title: Mergers with Differentiated Products: The Case of the Ready-to-Eat Cereal Industry
Abstract: Traditional merger analysis is difficult to implement when evaluating mergers in industries with differentiated products. I discuss an alternative, which consists of demand estimation and the use of a model of postmerger conduct to simulate the competitive effects of a merger. I estimate a brand-level demand system for ready-to-eat cereal using supermarket scanner data and use the estimates to (1) recover marginal costs, (2) simulate postmerger price equilibria, and (3) compute welfare effects, under a variety of assumptions. The methodology is applied to five mergers, two of which occurred and for which I compare predicted to actual outcomes.
JEL Classification
Production, Pricing, and Market Structure Size and Size Distribution of Firms Concentration, Product Differentiation, Entry and Exit (L110 )
Mergers Acquisitions Restructuring Voting Proxy Contests Corporate Governance (G340 )
Food Beverages Cosmetics Tobacco (L660 )
Merger