Template-Type: ReDIF-Paper 1.0
Title: Merger Analysis with IIA Demand and Type Aggregation
Author-Name: Volker Nocke
Author-Email: volker.nocke@gmail.com
Author-Name: Nicolas Schutz
Author-Email: schutz@uni-mannheim.de
Classification-JEL: L13, L40, D43
Keywords: multiproduct firms, aggregative game, oligopoly pricing, IIA demand, type aggregation, horizontal merger, 
Herfindahl index, generalized CES demand, generalized multinomial logit demand 


Abstract: We propose a framework for merger analysis with multiproduct firms under generalized CES (GCES) and 
generalized multinomial logit (GMNL) demand. Despite allowing for arbitrary firm and product heterogeneity, 
we obtain the type aggregation property: All relevant information about a firm's product portfolio can be 
summarized in a uni-dimensional sufficient statistic, the firm's type. Indeed, GCES and GMNL are shown to be 
the only IIA demand systems giving rise to that property. Relative to standard CES and MNL demand, our 
generalization implies that prices, locally, can be strategic complements or substitutes, depending on the local 
behavior of the curvature of indirect utility. In turn, this distinction is shown to determine whether competition 
authorities should be more or less strict on mergers in more competitive industries. We obtain further results 
on the static and dynamic consumer surplus effects of mergers, the aggregate surplus and external effects of 
mergers, and on the relationship between the market power effect of a merger and the merger-induced change 
in the Herfindahl index. 


Note: 
Length: 64
Creation-Date: 2023-09
Revision-Date:
File-URL: https://www.crctr224.de/research/discussion-papers/archive/dp459
File-Format: application/pdf
Handle: RePEc:bon:boncrc:CRCTR224_2023_459