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Horizontal Mergers of Online Firms: Structural Estimation and Competitive Effects

An, Yonghong and Baye, Michael R. and Hu, Yingyao and Morgan, John W. and Shum, Matthew (2010) Horizontal Mergers of Online Firms: Structural Estimation and Competitive Effects. Social Science Working Paper, . (Unpublished) http://resolver.caltech.edu/CaltechAUTHORS:20160329-103515641

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Abstract

This paper (1) presents a general model of online price competition, (2) shows how to structurally estimate the underlying parameters of the model when the number of competing firms is unknown or in dispute, (3) estimates these parameters based on UK data for personal digital assistants, and (4) uses these estimates to simulate the competitive effects of horizontal mergers. Our results suggest that competitive effects in this online market are more closely aligned with the simple homogeneous product Bertrand model than might be expected given the observed price dispersion and number of firms. Our estimates indicate that so long as two firms remain in the market post merger, the average transaction price is roughly unaffected by horizontal mergers. However, there are potential distributional effects; our estimates indicate that a three-to-two merger raises the average transaction price paid by price sensitive "shoppers" by 2.88 percent, while lowering the average transaction price paid by consumers "loyal" to a particular firm by 1.37 percent.


Item Type:Report or Paper (Working Paper)
ORCID:
AuthorORCID
Shum, Matthew0000-0002-6262-915X
Additional Information:This research began while Baye was serving as the Director of the Bureau of Economics at the Federal Trade Commission. We thank his former colleagues there, especially Dan OíBrien and Dan Hosken, for helpful discussions. We also thank seminar participants at Northwestern University for comments on a preliminary draft. Morgan thanks the National Science Foundation for financial support.
Subject Keywords:Antitrust, E-Retail, Stuctural Estimation, Mergers
Other Numbering System:
Other Numbering System NameOther Numbering System ID
Johns Hopkins Working Paperwp564
Record Number:CaltechAUTHORS:20160329-103515641
Persistent URL:http://resolver.caltech.edu/CaltechAUTHORS:20160329-103515641
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:65739
Collection:CaltechAUTHORS
Deposited By: Susan Vite
Deposited On:31 Mar 2016 20:33
Last Modified:11 Sep 2017 22:24

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