Pass-through rates and the price effects of mergers

We find that the demand,conditions that cause a merger to result in large price increases absent synergies also cause the pass-through rate to be high. The low estimated pass-through rate and the relatively large predicted merger eect, thus, likely were inconsistent in an im- portant US merger case. We use Monte Carlo experiments to study how pass‐through can improve merger price predictions, focusing on the first order approximation (FOA) proposed in Jaffe and Weyl []. FOA addresses the funct

We find that the demand conditions that cause a merger to result in large price increases absent synergies also cause the pass-through rate to be high. The low estimated pass-through rate and the relatively large predicted merger effect, thus likely, were inconsistent in an important U.S. merger case. Our main conclusion is that pass-through rates and price effects are closely related. In particular, when a merger would cause large price increases absent synergies, the pass-through rate is high. This close relationship implies that pass-through and price effects should not be addressed independently in any phase of a merger investigation. In a general (residual) monopoly model we show that the pass-through rate at which cost increases translate into price rises, which is a function of the curvature of demand and cost, in turn CiteSeerX - Document Details (Isaac Councill, Lee Giles, Pradeep Teregowda): We investigate the relationship in Bertrand oligopoly between the price effects of mergers absent synergies, and the rates at which merger synergies are passed through to consumers in the form of lower prices. We find that the demand conditions that cause a merger to result in large price increases absent synergies We use Monte Carlo experiments to study how pass‐through can improve merger price predictions, focusing on the first order approximation (FOA) proposed in Jaffe and Weyl . FOA addresses the functional form misspecification that can exist in standard merger simulations. Pass-through rates and the price effects of mergers

Pass-through rates and the price effects of mergers

22 Jan 2007 Abstract Despite the oft‐recognized reality of zone pricing by food merger simulation assumption of uniform pass‐through by retailers. The effect of mergers on consumers can be positive or negative, depending on the industry Prices. By eliminating at least one competitor, a merger may allow the entity may also pass on cost savings to consumers through lower prices. 20 Dec 2014 The Cournot effect derived from a vertical merger, that is the price The pass- through rate, however, is lower in a composite good industry. 26 Oct 2018 exercise not unlike analysing pass-on, using data on prices, margins and elasticities to estimate the hypothetical price effects of a merger. Riordan, Competitive Effects of Vertical Integration, in HANDBOOK OF ANTITRUST merger by changing their prices, by repositioning their products, or by further entry. tion about the cost pass-through rate of the upstream merging firm. consumer prices, while the fifth merger had little effect on prices. resources and a reduction in marginal costs that is ultimately passed through to consumers. FTC relied primarily on direct estimates of the merger's effect on prices, through office superstores, and that the resulting price increases could be expected to be other aspects of Staples, go to http://www.antitrust.org/cases/merger.htm.

22 Apr 2008 By dropping the data within three months of the merger date, we avoid the issue of exactly when the firms start coordinating their pricing 

1 Feb 1999 Unilateral Effects of Mergers: The Simulation Approach by Interstate could pursue such a pricing strategy without losing so much Justice, suggested, “to assess unilateral effects most accurately, it is highly desirable to go. 23 Apr 2010 of using various models to estimate the price effects of mergers “has et. al., Pass-Through Rates and the Price Effects of Mergers, 23 INT'L J. The gross price effects and pass-through effects of mergers can be jointly estimated using the net merger predictor presented in Eq. . The second derivatives of the profit (demand) function play a vital role in determining both effects, and the estimator of the net merger effect is crucially dependent on them. We find that the demand conditions that cause a merger to result in large price increases absent synergies also cause the pass-through rate to be high. The low estimated pass-through rate and the relatively large predicted merger effect, thus likely, were inconsistent in an important U.S. merger case. Our main conclusion is that pass-through rates and price effects are closely related. In particular, when a merger would cause large price increases absent synergies, the pass-through rate is high. This close relationship implies that pass-through and price effects should not be addressed independently in any phase of a merger investigation. In a general (residual) monopoly model we show that the pass-through rate at which cost increases translate into price rises, which is a function of the curvature of demand and cost, in turn

merger concerns in differentiated products markets has evolved over time. prices where these two effects balance, so the gain in profits from increasing or L. Froeb, S. Tschantz, S, & G. Werden, Pass‐Through Rates and the Price Effects of.

26 Oct 2018 exercise not unlike analysing pass-on, using data on prices, margins and elasticities to estimate the hypothetical price effects of a merger. Riordan, Competitive Effects of Vertical Integration, in HANDBOOK OF ANTITRUST merger by changing their prices, by repositioning their products, or by further entry. tion about the cost pass-through rate of the upstream merging firm. consumer prices, while the fifth merger had little effect on prices. resources and a reduction in marginal costs that is ultimately passed through to consumers. FTC relied primarily on direct estimates of the merger's effect on prices, through office superstores, and that the resulting price increases could be expected to be other aspects of Staples, go to http://www.antitrust.org/cases/merger.htm. C studies coordinated effects through the economics of tacit collusion. Part D reviews a The effect of mergers on prices and quantities. Perfect collusion would require firms to go on with the monopoly price, even after a shock on demand. 4 Jun 2001 This paper studies the welfare effects of horizontal mergers in a Cournot They may consume the same average amount as under stable prices, Mary: Identifying the Firm Specific Pass Through Rate, FTC Discussion paper  This unofficial version of the 2010 Horizontal Merger Guidelines has been Enhancement of market power by sellers often elevates the prices charged to these Guidelines generally discuss the analysis in terms of such price effects. especially if the direct customers expect to pass on any anticompetitive price increase.

Hellerstein, Rebecca, 2008. "Who bears the cost of a change in the exchange rate? Pass-through accounting for the case of beer," Journal of International Economics Luke & Tschantz, Steven & Werden, Gregory J., 2005. "Pass-through rates and the price effects of mergers," International Journal of Industrial Organization, Elsevier, vol. 23

6 Jun 2017 2 However, it is by no means clear that efficiency gains are passed on to consumers since the pass-through depends on demand curvature ( 

"Upward Pricing Pressure as a Predictor of Merger Price Effects," EAG Discussions Papers 201602, Department of Justice, Antitrust Division. Bittmann, Thomas & Loy, Jens-Peter & Anders, Sven, 2017. " Cost Pass-Through And Product Differentiation ," 2017 International Congress, August 28-September 1, 2017, Parma, Italy 261145, European Hellerstein, Rebecca, 2008. "Who bears the cost of a change in the exchange rate? Pass-through accounting for the case of beer," Journal of International Economics Luke & Tschantz, Steven & Werden, Gregory J., 2005. "Pass-through rates and the price effects of mergers," International Journal of Industrial Organization, Elsevier, vol. 23 We find that the demand,conditions that cause a merger to result in large price increases absent synergies also cause the pass-through rate to be high. The low estimated pass-through rate and the relatively large predicted merger eect, thus, likely were inconsistent in an im- portant US merger case. We use Monte Carlo experiments to study how pass‐through can improve merger price predictions, focusing on the first order approximation (FOA) proposed in Jaffe and Weyl []. FOA addresses the funct Hellerstein, Rebecca, 2008. "Who bears the cost of a change in the exchange rate? Pass-through accounting for the case of beer," Journal of International Economics Luke & Tschantz, Steven & Werden, Gregory J., 2005. "Pass-through rates and the price effects of mergers," International Journal of Industrial Organization, Elsevier, vol. 23