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Mergers with Differentiated Products: The Case of the Ready-to-Eat Cereal Industry

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  • Aviv Nevo

Abstract

Traditional merger analysis is difficult to implement when evaluating mergers in industries with differentiated products. I discuss an alternative, which consists of demand estimation and the use of a model of postmerger conduct to simulate the competitive effects of a merger. I estimate a brand-level demand system for ready-to-eat cereal using supermarket scanner data and use the estimates to (1) recover marginal costs, (2) simulate postmerger price equilibria, and (3) compute welfare effects, under a variety of assumptions. The methodology is applied to five mergers, two of which occurred and for which I compare predicted to actual outcomes.

Suggested Citation

  • Aviv Nevo, 2000. "Mergers with Differentiated Products: The Case of the Ready-to-Eat Cereal Industry," RAND Journal of Economics, The RAND Corporation, vol. 31(3), pages 395-421, Autumn.
    • Handle: RePEc:rje:randje:v:31:y:2000:i:autumn:p:395-421
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