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Does Merger Simulation Work? A “Natural Experiment” in the Swedish Analgesics Market Market

By  |  September 19, 2012

Does Merger Simulation Work? A “Natural Experiment” in the Swedish Analgesics Market Market by Jonas Bjornerstedt and Frank Verboven 

ABSTRACT: We exploit a natural experiment associated with a large merger in the Swedish market for analgesics (painkillers). We confront the predictions from a merger simulation study, as conducted during the investigation, with the actual merger effects over a two-year comparison window. The merger simulation model is based on a constant expenditures specification for the nested logit model (as an alternative to the typical unit demand specification). The model predicts a large price increase of 34% by the merging firms, because there is strong market segmentation and the merging firms are the only competitors in the largest segment. The actual price increase after the merger is of a similar order of magnitude: +42% in absolute terms and +35% relative to the…