Challenges in Merger Simulation Analysis
Christopher R. Knittel, Konstantinos Metaxoglou
American Economic Review · 2011 · Volume 101 · Issue 3
Abstract
In this paper, we share our experience with merger simulations using a Random Coefficient Logit model on the demand side and assuming a static Bertrand game on the supply side. Drawing largely from our work in Knittel and Metaxoglou (2008), we show that different demand estimates obtained from different combinations of optimization algorithms and starting values lead to substantial differences in post-merger market outcomes using metrics such as industry profits, and change in consumer welfare and prices.
Keywords
Market Structure and Pricing: Oligopoly and Other Forms of Market Imperfection, Mergers, Acquisitions, Restructuring, Voting, Proxy Contests, Corporate Governance, Production, Pricing, and Market Structure, Size Distribution of Firms, Oligopoly and Other Imperfect Markets, Firm Performance: Size, Diversification, and Scope
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