Does Merger Simulation Work? Evidence from the Swedish Analgesics Market
American Economic Journal: Applied Economics
vol. 8,
no. 3, July 2016
(pp. 125-64)
Abstract
We analyze a large merger in the Swedish market for analgesics (painkillers). The merging firms raised prices by 40 percent, and some outsiders raised prices by more than 10 percent. We confront these changes with predictions from a merger simulation model. With basic supply side assumptions, the models correctly or moderately underpredict the merging firms' price increase. However, they predict a larger price increase for the smaller firm, which was not the case in practice, and they underpredict the outsiders' responses. We consider several supply side explanations: a plausible cost increase after the merger and the possibility of partial collusion.Citation
Björnerstedt, Jonas, and Frank Verboven. 2016. "Does Merger Simulation Work? Evidence from the Swedish Analgesics Market." American Economic Journal: Applied Economics, 8 (3): 125-64. DOI: 10.1257/app.20130034Additional Materials
JEL Classification
- C63 Computational Techniques; Simulation Modeling
- D22 Firm Behavior: Empirical Analysis
- G34 Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance
- L11 Production, Pricing, and Market Structure; Size Distribution of Firms
- L25 Firm Performance: Size, Diversification, and Scope
- L65 Chemicals; Plastics; Rubber; Drugs; Biotechnology
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