IDEAS home Printed from https://ideas.repec.org/a/aea/aejmic/v5y2013i4p188-218.html
   My bibliography  Save this article

The First-Order Approach to Merger Analysis

Author

Listed:
  • Sonia Jaffe
  • E. Glen Weyl

Abstract

Using information local to the premerger equilibrium, we derive approximations of the expected changes in prices and welfare generated by a merger. We extend the pricing pressure approach of recent work to allow for non-Bertrand conduct, adjusting the diversion ratio and incorporating the change in anticipated accommodation. To convert pricing pressures into quantitative estimates of price changes, we multiply them by the merger pass-through matrix, which (under conditions we specify) is approximated by the premerger rate at which cost increases are passed through to prices. Weighting the price changes by quantities gives the change in consumer surplus.

Suggested Citation

  • Sonia Jaffe & E. Glen Weyl, 2013. "The First-Order Approach to Merger Analysis," American Economic Journal: Microeconomics, American Economic Association, vol. 5(4), pages 188-218, November.
    • Handle: RePEc:aea:aejmic:v:5:y:2013:i:4:p:188-218
    Note: DOI: 10.1257/mic.5.4.188
    as

    Download full text from publisher

    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/mic.5.4.188
    Download Restriction: no
    File URL: http://www.aeaweb.org/aej/mic/app/2012-0166_app.pdf
    Download Restriction: no
    File URL: http://www.aeaweb.org/aej/mic/ds/november2013/2012-0166_ds.zip
    Download Restriction: Access to full text is restricted to AEA members and institutional subscribers.
    ---><---

    References listed on IDEAS

    as
    1. Klemperer, Paul D & Meyer, Margaret A, 1989. "Supply Function Equilibria in Oligopoly under Uncertainty," Econometrica, Econometric Society, vol. 57(6), pages 1243-1277, November.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jordi Brandts & Paul Pezanis‐Christou & Arthur Schram, 2008. "Competition with forward contracts: a laboratory analysis motivated by electricity market design," Economic Journal, Royal Economic Society, vol. 118(525), pages 192-214, January.
    2. Lise, Wietze & Hobbs, Benjamin F. & Hers, Sebastiaan, 2008. "Market power in the European electricity market--The impacts of dry weather and additional transmission capacity," Energy Policy, Elsevier, vol. 36(4), pages 1331-1343, April.
    3. Josheski Dushko & Karamazova Elena, 2021. "Auction theory and a note on game mechanisms," Croatian Review of Economic, Business and Social Statistics, Sciendo, vol. 7(1), pages 43-59, May.
    4. Hugo Pedro Boff, 2004. "The Supply Of Perishable Goods," Econometric Society 2004 Latin American Meetings 306, Econometric Society.
    5. Newbery, David M. & Greve, Thomas, 2017. "The strategic robustness of oligopoly electricity market models," Energy Economics, Elsevier, vol. 68(C), pages 124-132.
    6. Li, Gong & Shi, Jing & Qu, Xiuli, 2011. "Modeling methods for GenCo bidding strategy optimization in the liberalized electricity spot market–A state-of-the-art review," Energy, Elsevier, vol. 36(8), pages 4686-4700.
    7. Moritz Bohland & Sebastian Schwenen, 2020. "Technology Policy and Market Structure: Evidence from the Power Sector," Discussion Papers of DIW Berlin 1856, DIW Berlin, German Institute for Economic Research.
    8. Holmberg, Pär, 2009. "Numerical calculation of an asymmetric supply function equilibrium with capacity constraints," European Journal of Operational Research, Elsevier, vol. 199(1), pages 285-295, November.
    9. Fabra, Natalia & Toro, Juan, 2005. "Price wars and collusion in the Spanish electricity market," International Journal of Industrial Organization, Elsevier, vol. 23(3-4), pages 155-181, April.
    10. Willems, Bert & Rumiantseva, Ina & Weigt, Hannes, 2009. "Cournot versus Supply Functions: What does the data tell us?," Energy Economics, Elsevier, vol. 31(1), pages 38-47, January.
    11. Anette Boom & Sebastian Schwenen, 2021. "Is real-time pricing smart for consumers?," Journal of Regulatory Economics, Springer, vol. 60(2), pages 193-213, December.
    12. Fiuza de Bragança, Gabriel Godofredo & Daglish, Toby, 2016. "Can market power in the electricity spot market translate into market power in the hedge market?," Energy Economics, Elsevier, vol. 58(C), pages 11-26.
    13. Carlos Suarez, 2023. "Mixed Oligopoly and Market Power Mitigation: Evidence from the Colombian Wholesale Electricity Market," Journal of Industrial Economics, Wiley Blackwell, vol. 71(2), pages 354-406, June.
    14. Han, Seungjin, 2006. "Menu theorems for bilateral contracting," Journal of Economic Theory, Elsevier, vol. 131(1), pages 157-178, November.
    15. de Frutos, María-Ángeles & Fabra, Natalia, 2011. "Endogenous capacities and price competition: The role of demand uncertainty," International Journal of Industrial Organization, Elsevier, vol. 29(4), pages 399-411, July.
    16. Bonacina, Monica & Gulli`, Francesco, 2007. "Electricity pricing under "carbon emissions trading": A dominant firm with competitive fringe model," Energy Policy, Elsevier, vol. 35(8), pages 4200-4220, August.
    17. Attar, Andrea & Mariotti, Thomas & Salanié, François, 2019. "On competitive nonlinear pricing," Theoretical Economics, Econometric Society, vol. 14(1), January.
    18. Harbord, David & Pagnozzi, Marco, 2014. "Britain's electricity capacity auctions: lessons from Colombia and New England," MPRA Paper 56224, University Library of Munich, Germany.
    19. Vasin Alexander & Vasina Polina, 2005. "Models of supply functions competition with application to the network auctions," EERC Working Paper Series 05-03e, EERC Research Network, Russia and CIS.
    20. Liliane Karlinger, 2008. "How Demand Information Can Destabilize a Cartel," Vienna Economics Papers 0803, University of Vienna, Department of Economics.

    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aea:aejmic:v:5:y:2013:i:4:p:188-218. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Michael P. Albert (email available below). General contact details of provider: https://edirc.repec.org/data/aeaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.