Working Paper: NBER ID: w30146
Authors: Ying Fan; Chenyu Yang
Abstract: This paper presents a new method for estimating discrete games based on bounds of conditional choice probabilities. The method does not require solving the game and is scalable to models with many firms and many discrete decisions. We apply the method to study merger effects on firm entry and product variety in the retail craft beer market in California. We simulate an acquisition of multiple craft breweries by a large brewery and find that the acquisition would induce firm entry and product entry by non-merging firms. However, these changes are insufficient to offset the negative welfare effects resulting from the higher prices and decreased product offerings by the merging firms.
Keywords: Discrete games; merger effects; product variety; craft beer market
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) | new firm entry (M13) |
| merger (G34) | product entry by non-merging firms (L19) |
| merger (G34) | decreased product offerings (L15) |
| merger (G34) | higher prices (D49) |
| merger (G34) | negative welfare impacts (D62) |
| new firm entry (M13) | positive welfare effect (D69) |
| decreased product offerings (L15) | consumer surplus loss (D11) |