Pass-Through Rates and the Price Effects of Mergers

We investigate the relationship between the price effects of mergers in Bertrand oligopoly and the rates at which merger synergies are passed through to consumers in the form of lower prices. Our main conclusion is that pass-through rates and price effects are closely related. In particular, when a merger would cause large price increases absent synergies, the pass-through rate is high. This close relationship implies that pass-through and price effects should not be addressed independently in any phase of a merger investigation. We show that in a leading merger case, the low estimated pass-through rate and the relatively large predicted merger effect most likely were inconsistent.

[1]  Gregory K. Leonard,et al.  Competitive Analysis with Differentiated Products , 1994 .

[2]  Simon P. Anderson,et al.  Tax Incidence in Differentiated Product Oligopoly , 2000 .

[3]  J. Baker.  Econometric Analysis in FTC v. Staples , 1999 .

[4]  Paul C. Pfleiderer,et al.  A Note on the Effect of Cost Changes on Prices , 1983, Journal of Political Economy.

[5]  Carl Shapiro,et al.  Mergers with Differentiated Products , 1996 .

[6]  F. Verboven,et al.  Merger Control and Enterprise Competitiveness: Empirical Analysis and Policy Recommendations , 2006 .

[7]  Aviv Nevo.  Mergers with differentiated products: the case of the ready-to-eat cereal industry , 2000 .

[8]  D. McFadden,et al.  MIXED MNL MODELS FOR DISCRETE RESPONSE , 2000 .

[9]  L. White,et al.  The Antitrust Revolution , 1989 .

[10]  Luke M. Froeb,et al.  Mergers in Sealed versus Oral Auctions , 2000 .

[11]  S. Salop,et al.  Competitive Effects of Partial Ownership: Financial Interest and Corporate Control , 2000 .

[12]  T. Bresnahan,et al.  Quantifying the competitive effects of production joint ventures , 1986 .

[13]  Luke M. Froeb,et al.  Simulation as an Alternative to Structural Merger Policy in Differentiated Products Industries , 1996 .

[14]  Gregory J. Werden,et al.  A Robust Test for Consumer Welfare Enhancing Mergers among Sellers of Differentiated Products , 1996 .

[15]  Luke M. Froeb,et al.  The Effects of Merger Synergies on Consumers of Differentiated Products , 2001 .

[16]  Luke M. Froeb,et al.  The Effects of Mergers in Differentiated Products Industries: Logit Demand and Merger Policy , 1994 .

[17]  P. Crooke,et al.  Simulating Merger E ects Among Capacity-Constrained Firms , 1999 .

[18]  Steven T. Berry,et al.  Automobile Prices in Market Equilibrium , 1995 .

[19]  Luke M. Froeb,et al.  A robust test for consumer welfare enhancing mergers among sellers of a homogeneous product , 1998 .

[20]  Effects of Assumed Demand Form on Simulated Postmerger Equilibria , 1999 .