Merger Simulation with Brand-Level Margin Data: Extending PCAIDS with Nests

A BEJEAP Advances article. Abstract We present a method to calibrate empirically the demand parameters in a merger simulation model by using brand-level profit margin data. While the approach can be generalized, we develop these ideas within a particular framework - the PCAIDS (proportionality-calib...

Full description

Saved in:
Bibliographic Details
Published in:Advances in economic analysis & policy 2004-03, Vol.4 (1), p.2
Main Authors: Epstein, Roy J, Rubinfeld, Daniel L
Format: Article
Language:English
Subjects:
Acquisitions & mergers
Antitrust
Approximation
Competition
Data analysis
Econometrics
Economic analysis
Economic models
Economic policy
Economics
Elasticity of demand
Market shares
merger simulation
Mergers
Price elasticity
Profit
Profit margins
Profit maximization
Simulation
Studies
unilateral effects
Citations: Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:A BEJEAP Advances article. Abstract We present a method to calibrate empirically the demand parameters in a merger simulation model by using brand-level profit margin data. While the approach can be generalized, we develop these ideas within a particular framework - the PCAIDS (proportionality-calibrated AIDS) model. We show that the brand-level margins effectively define product "nests" (products that are especially close substitutes) and substantially increase the flexibility of PCAIDS for modeling critical own- and cross-price elasticities. The model is particularly valuable for transactions at the wholesale level (where scanner data do not exist) and for geographic markets that span national borders (where comparable data may not be available), since other methods to derive elasticities, particularly those based on econometric estimation, may not be possible or may not be reliable. Submitted: October 13, 2003 · Accepted: March 1, 2004 · Published: March 17, 2004 Originally published in Advances in Economic Analysis & Policy. Recommended Citation Epstein, Roy J. and Rubinfeld, Daniel L. (2004) "Merger Simulation with Brand-Level Margin Data: Extending PCAIDS with Nests," Advances in Economic Analysis & Policy: Vol. 4 : Iss. 1, Article 2. Available at: http://www.bepress.com/bejeap/advances/vol4/iss1/art2
ISSN:1538-0637
1935-1682
1538-0637
DOI:10.2202/1538-0637.1212