Research
I develop a Nash-bargaining model in which mergers and divestitures impact the bargaining weights. Next, I present a novel empirical framework to identify bounds on the upstream bargaining weights between manufacturers and retailers at the brand level and solve bias due to endogenous selection of divestiture packages. I analyze a landmark U.S. merger, approved conditional on divestiture, and its effect on bargaining power, final prices, and consumer surplus. Compared to a no-merger scenario, I estimate an increase in bargaining weights associated with divested brands and a decrease related to the brands of the merged entity. This shift contributes to an overall increase in the consumer surplus. In addition, I show that it is profitable for the merged firms to select a divestiture package so that the prices of the divested brands increase.
This paper investigates whether merger remedies, such as divestitures,
can cause more harm than good using a model of firm conduct. The model is
estimated leveraging the variation generated by a large divestiture in the US
beer market. First, I find that price coordination, materialized through conduct parameters, acts as a countervailing force that limits the pro-competitive
effects of a divestiture. Price coordination eliminates about 80% to 133% of the
welfare gains from a divestiture. Second, based on counterfactual simulations,
I show that a merger cleared with divestiture is likely to reduce consumer
surplus more than a merger approved without divestiture.
This paper analyzes a merger of large manufacturers with divestiture in the French coffee market. In contrast to previous approaches used to study the effects of upstream divestitures on prices and welfare, we model the vertical market structure. First, our results show that the standard policy recommendation to require divestiture to small recipient firms may not hold when asymmetric bargaining power between firms is considered. Second, we show that previous models significantly overestimate costs. We estimate costs that are 12 percent lower, and find that divestiture can lead to marginal cost savings for the buyer of the divested brand.
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