Working Paper: CEPR ID: DP9027
Authors: Jonas Bjrnerstedt; Frank Verboven
Abstract: We exploit a natural experiment associated with a large merger in the Swedish market for analgesics (painkillers). We confront the predictions from a merger simulation study, as conducted during the investigation, with the actual merger effects over a two-year comparison window. The merger simulation model is based on a constant expenditures specification for the nested logit model (as an alternative to the typical unit demand specification). The model predicts a large price increase of 34% by the merging firms, because there is strong market segmentation and the merging firms are the only competitors in the largest segment. The actual price increase after the merger is of a similar order of magnitude: +42% in absolute terms and +35% relative to the
Keywords: analgesics; constant expenditures; nested logit; ex post merger analysis; merger simulation
JEL Codes: L40; L41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| merger simulation (C59) | predicted price increase (E30) |
| predicted price increase (E30) | actual price increase (E31) |
| merger simulation (C59) | actual price increase relative to control group (E30) |
| merging firms' market shares drop (G34) | outsider firm market share drop (L19) |
| strong market segmentation (D40) | price increase (D49) |
| merger (G34) | price dynamics (E30) |