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Divestiture requirements as a tool for competition policy: A case from the Swedish beer market

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  • Friberg, Richard
  • Romahn, André

Abstract

We investigate the effect of divestitures on prices and welfare following the Carlsberg–Pripps merger in the Swedish beer market. Both difference-in-difference estimation and simulations using a random coefficients logit model suggest that divestitures are important for dampening price increases. Prices of divested brands fall by around 3% and the predicted price increase for Carlsberg falls from 3 to 1.6% as a result of the divestitures. To guide practice on divestitures, we investigate the role of the recipient and the number and characteristics of the divested products by simulating post-merger outcomes for all relevant cases. We find that in this setting with large multiproduct firms, the competition authority's most effective means to dampen adverse post-merger outcomes are to aim for a small recipient firm and attain a large number of divested products. Enforcing larger divestitures in terms of market share and raising the average cross-price elasticity between the merging parties' divested and retained products strengthen the dampening effect further.

Suggested Citation

  • Friberg, Richard & Romahn, André, 2015. "Divestiture requirements as a tool for competition policy: A case from the Swedish beer market," International Journal of Industrial Organization, Elsevier, vol. 42(C), pages 1-18.
    • Handle: RePEc:eee:indorg:v:42:y:2015:i:c:p:1-18
    DOI: 10.1016/j.ijindorg.2015.06.005
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    Cited by:

    1. Charpin, Ariane & Piechucka, Joanna, 2021. "Merger efficiency gains: Evidence from a large transport merger in france," International Journal of Industrial Organization, Elsevier, vol. 77(C).
    2. Xiangrui Wang & Ron C. Mittelhammer & Thomas L. Marsh & Jill J. McCluskey, 2023. "Is Divestiture Effective as a Merger Remedy in the U.S. Beer Industry?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 62(1), pages 1-18, February.
    3. Luca Aguzzoni & Elena Argentesi & Lorenzo Ciari & Tomaso Duso & Massimo Tognoni, 2016. "Ex post Merger Evaluation in the U.K. Retail Market for Books," Journal of Industrial Economics, Wiley Blackwell, vol. 64(1), pages 170-200, March.
    4. Policarpo Garcia, Carolina & Furquim de Azevedo, Paulo, 2019. "Should competition authorities care about conglomerate mergers?," International Journal of Industrial Organization, Elsevier, vol. 66(C), pages 78-118.
    5. John W. Mayo & Mark Whitener, 2021. "The Welfare Effects of Vertical Mergers and their Remedies," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 59(2), pages 409-441, September.
    6. Dennis Rickert & Jan Philip Schain & Joel Stiebale, 2021. "Local Market Structure and Consumer Prices: Evidence from a Retail Merger," Journal of Industrial Economics, Wiley Blackwell, vol. 69(3), pages 692-729, September.
    7. Sven Heim & Kai Hüschelrath & Ulrich Laitenberger, 2016. "The Duration of the EC Merger Control Process: Determinants and the Impact of the 2004 Merger Regulation Reform," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 23(1), pages 37-62, February.
    8. Stöhr, Annika, 2021. "Price effects of horizontal mergers: A retrospective on retrospectives," Ilmenau Economics Discussion Papers 151, Ilmenau University of Technology, Institute of Economics.
    9. Michele Fioretti & Junnan He & Jorge Tamayo, 2024. "Prices and Concentration: A U-shape? Theory and Evidence from Renewables," Papers 2407.03504, arXiv.org.
    10. Wang, Xiangrui & Mittelhammer, Ron C. & Marsh, Thomas L. & McCluskey, Jill J., 2017. "Divestiture of US Businesses May Fail as a Merger Remedy: The Case of the US Beer Industry," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 258388, Agricultural and Applied Economics Association.
    11. Brown, David P. & Eckert, Andrew & Shaffer, Blake, 2023. "Evaluating the impact of divestitures on competition: Evidence from Alberta’s wholesale electricity market," International Journal of Industrial Organization, Elsevier, vol. 89(C).
    12. Franco Mariuzzo & Peter L. Ormosi, 2017. "Post-merger price dynamics matter, so why do merger retrospectives ignore them?," Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) 2016-05, Centre for Competition Policy, University of East Anglia, Norwich, UK..
    13. Friberg, Richard, 2019. "All the bottles in one basket? Diversification and product portfolio composition," CEPR Discussion Papers 14119, C.E.P.R. Discussion Papers.
    14. Argentesi, Elena & Buccirossi, Paolo & Cervone, Roberto & Duso, Tomaso & Marrazzo, Alessia, 2016. "The effect of retail mergers on prices and variety: An ex-post evaluation," DICE Discussion Papers 225, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    15. Ariane Charpin & Joanna Piechucka, 2020. "Merger Efficiency Gains: Evidence from a Large Transport Merger in France," Discussion Papers of DIW Berlin 1843, DIW Berlin, German Institute for Economic Research.
    16. FUKASAWA Takeshi & OHASHI Hiroshi, 2023. "Long-run Effect of a Horizontal Merger and Its Remedial Standards," Discussion papers 23001, Research Institute of Economy, Trade and Industry (RIETI).

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    More about this item

    Keywords

    Divestitures; Merger simulation; Ex-post merger review;
    All these keywords.

    JEL classification:

    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L66 - Industrial Organization - - Industry Studies: Manufacturing - - - Food; Beverages; Cosmetics; Tobacco

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