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Essays on horizontal merger simulation: the curse of dimensionality, retail price discrimination, and supply channel stage-games

In the words of Joel I. Klein, former Assistant Attorney General of the United
States, “[a]ntitrust enforcement in the merger area has never been as time-consuming,
complex, or as central to the functioning of our economy as it is today” (Klein, 1998).
As such, the development of transparent, efficient, and accurate merger analysis tools is
an endeavor whose value continues to increase in the eyes of regulators and industry
participants alike. Arguably, the most visible result of such endeavors is the emergence
and advancement of a practice known as merger simulation.
The first goal of this dissertation is to evaluate the merits of the Distance Metric
(DM) demand model and its usefulness in merger simulations. Revered by its creators as
easy-to-use, flexible, and able to handle large numbers of products, the DM approach
has not received the “road-testing” necessary for establishing its practical usefulness.
The DM model is used to estimate demand elasticities for 45 bottled-juice products.
Elasticities are then used to simulate numerous hypothetical mergers. While adding
validity to the alleged strengths of the DM approach, an additional contribution is made
by demonstrating the robustness of merger simulation results across 22 DM
specifications. Despite the oft-recognized reality of zone pricing by food retailers, this form of
price discrimination has received little attention within the context of upstream merger
analysis. Thus, the second objective of this dissertation is to relax the conventional
merger simulation assumption of uniform pricing by retailers, allowing us to explore the
impacts of zone pricing on post-merger price effects. Using the ready-to-eat cereals
industry as a backdrop, it is shown that ignoring retail price discrimination veils a
potentially diverse set of price effects that are otherwise lost in uniform pricing analyses.
The goal of the final essay is to explore the implementation of more realistic
supply channel interactions in merger simulations. In particular, a two-stage pricing
game is used to conduct merger simulations in the refrigerated orange juice category.
The overriding finding is that comparisons with conventionally used models will not be
practical until the relationship between demand specification and two-stage game
modeling is better understood.
Date25 April 2007
CreatorsPofahl, Geoffrey Michael
ContributorsCapps, Oral Jr.
PublisherTexas A&M University
Source SetsTexas A and M University
Detected LanguageEnglish
TypeBook, Thesis, Electronic Dissertation, text
Format1714178 bytes, electronic, application/pdf, born digital

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