DP11218 Assessment of Post-merger Coordinated Effects: Characterization by Simulations

Author(s): Marc Ivaldi, Vicente Lagos
Publication Date: April 2016
Keyword(s): Collusion, Coordinated effects, Critical Discount Factor, Merger Simulation
JEL(s): L41
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=11218

This paper aims at evaluating the coordinated effects of horizontal mergers by simulating their impact on firms' critical discount factors. We consider a random coefficient model on the demand side and heterogeneous price-setting firms on the supply side. Results suggest that mergers strengthen the incentives to collude among merging parties, but weaken the incentives of non-merging parties, with the former effect being stronger. To assess the magnitudes of these effects, we introduce the concepts of Asymmetry in Payoffs and Change in Payoffs effects, which allow us to identify appropriate screening tools according to the relative pre-merger payoffs of merging parties.