Discussion Paper Details

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Title: Quantifying the Effects from Horizontal Mergers in European Competition Policy

Author(s): Marc Ivaldi and Frank Verboven

Publication Date: February 2001

Keyword(s): Competition Policy, Differentiated Product Markets, Merger Analysis and Nested Logit Models

Programme Area(s): Industrial Organization

Abstract: This Paper starts from a recent case studying how merger analysis in Europe may potentially be improved through simulation analysis. Starting from the product and geographic market definition in the Merger Decision, we formulate and estimate an oligopoly model with differentiated products. The model is simulated to account for the changed multiproduct ownership structure after the merger. We show how our first two tests, a potential and an actual market power test, produce useful information, complementary to the traditional dominance principle adopted in the European Union. A drastic revision of current merger principles is thus not required. We also show how simulation analysis can provide useful additional information that goes beyond the traditional dominance principle. This is illustrated through two examples. First, we analyse the effects of efficiencies through cost savings. Second, we compare alternative merger scenarios.

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Bibliographic Reference

Ivaldi, M and Verboven, F. 2001. 'Quantifying the Effects from Horizontal Mergers in European Competition Policy'. London, Centre for Economic Policy Research.