Seminar

Does Merger Simulation Work? Evidence from the Swedish Analgesics Market

Frank Verboven (University of Leuven)

March 11, 2013, 14:00–15:30

Room MF 323

Industrial Organization seminar

Abstract

We analyze a large merger in the Swedish market for analgesics (painkillers). We confront the predictions from a merger simulation study, initiated during the investigation, with the actual merger effects over a two-year comparison window. The merger simulation model predicted a large price increase by the merging firms of up to 34%, because there is strong market segmentation and the merging firms are the only competitors in the largest segment. The actual price increase after the merger is of a similar order of magnitude, but even larger: +42% in absolute terms and +35% relative to the non-merging rivals. These findings are supportive of merger simulation, but a closer look at a wider range of merger predictions leads to more nuanced conclusions. First, both merging firms raised their prices by a similar percentage, while the simulation model predicted a larger price increase for the smaller firm. Second, one of the outsider firms also raised price by a fairly large amount after the merger, while the model predicted only a very small price increase of the outsiders. This in turn implied a lower than predicted market share drop for the merging firms. Keywords: merger simulation, ex post merger evaluation, constant expenditures nested logit, analgesics or painkillers