Merger Control in Differentiated Product

Patrick Walsh (), Franco Mariuzzo and Ciara Whelan

Economic Papers from Trinity College Dublin, Economics Department

Abstract: Thresholds defined on the level and change in the HHI (Herfindahl- Hirschmann Index) applied to market shares seem to be the main instrument to select notified mergers for investigation in both the EU and US. We question the use of such a selection rule in di?erentiated products industries. We propose the use of a structural approach to apply HHI thresholds based on profit shares rather than market shares. We illustrate our point using product data for Retail Carbonated Soft Drinks (Price, Market Share and Characteristics). We estimate company (product) mark-ups consistent with a structural model of equilibrium, using demand primitives from a Nested Logit model and a Random Coe?cient model. We provide an example where the HHI thresholds based on profit shares identify potentially damaging mergers not captured by applying thresholds to output shares, or conversely, identify mergers of no concern that would be selected on the basis of output shares.

JEL-codes: K2 L11 L25 L40 L81 (search for similar items in EconPapers)
Date: 2005-08
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Working Paper: Merger Control in Differentiated Product (2005)
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