Copyright (c) 1997 George Mason Law Review
George Mason Law Review
ARTICLE: PRODUCT DIFFERENTIATION: ECONOMIC ANALYSIS OF DIFFERENTIATED PRODUCTS MERGERS USING REAL WORLD DATA
5 Geo. Mason L. Rev. 321
Jerry A. Hausman * and Gregory K. Leonard **
Economic analyses of the competitive effects of mergers in differentiated product industries typically concentrate on the potential for so-called unilateral effects. Unilateral effects arise when the products of the merging parties place significant competitive constraints on each other prior to the merger. The merged company may then be able to raise prices postmerger, unilaterally, depending on the importance of the pre-merger competitive constraints the merging firms had on each other.
An analysis of unilateral effects thus seeks to determine whether the removal of the competitive constraints the merging firms' products place on each other is likely to lead to higher prices after the merger. The strength of these pre-merger competitive constraints depends in part upon the structure of consumer demand. Thus, an economic analysis of the consequences of the merger requires that something be known or, in the usual situation, estimated about the structure of demand.
When sufficiently detailed data are available, which is typically the situation for the many consumer goods for which Nielsen and IRI collect scanner data, the demand structure can be estimated using econometric methods. In other words, the demand structure reflected by real world transactions data can be used to analyze the merger. We have developed an econometric approach for estimating the industry demand structure when retail scanner data are available. 1 We have applied the approach to analyze consumer demand in a number of consumer goods industries, such as beer, shaving cream, deodorants, ready-to-eat cereal, color film, frozen ...
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