Working Paper: CEPR ID: DP18199
Authors: Ying Fan; Chenyu Yang
Abstract: This paper presents an estimation method scalable to discrete games with many firms and many decisions. The method is applied to study merger effects on firm entry and product variety in the California retail craft beer market. Simulation results indicate that a merger, where a large brewery acquires several craft breweries, reduces product variety without efficiency gains, but increases variety with an efficiency in reducing fixed costs. Post-merger, firm entry occurs, but fails to counteract the merger’s negative effects on both consumers and total surplus. The fixed cost merger efficiency reduces, but does not reverse, the negative welfare effects.
Keywords: Discrete Games; Incomplete Models; Entry; Product Choice; Merger; Beer
JEL Codes: D43; L13; L41; L66
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| merger (G34) | product variety (L15) |
| merger leads to efficiencies (G34) | product variety (L15) |
| merger (G34) | consumer welfare (D69) |
| post-merger firm entry (L19) | consumer welfare (D69) |
| merger leads to efficiencies (G34) | consumer welfare (D69) |