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

摘要

In the words of Joel I. Klein, former Assistant Attorney General of the UnitedStates, ??????[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 isan endeavor whose value continues to increase in the eyes of regulators and industryparticipants alike. Arguably, the most visible result of such endeavors is the emergenceand 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 aseasy-to-use, flexible, and able to handle large numbers of products, the DM approachhas 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 addingvalidity to the alleged strengths of the DM approach, an additional contribution is madeby demonstrating the robustness of merger simulation results across 22 DMspecifications. Despite the oft-recognized reality of zone pricing by food retailers, this form ofprice discrimination has received little attention within the context of upstream mergeranalysis. Thus, the second objective of this dissertation is to relax the conventionalmerger simulation assumption of uniform pricing by retailers, allowing us to explore theimpacts of zone pricing on post-merger price effects. Using the ready-to-eat cerealsindustry as a backdrop, it is shown that ignoring retail price discrimination veils apotentially 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 realisticsupply channel interactions in merger simulations. In particular, a two-stage pricinggame is used to conduct merger simulations in the refrigerated orange juice category.The overriding finding is that comparisons with conventionally used models will not bepractical until the relationship between demand specification and two-stage gamemodeling is better understood.