How to simulate the coordinated effect of a merger (original) (raw)
In order to evaluate the collusive impact of a merger only descriptive tools are generally employed, as the application of econometric techniques is sporadic and simulation models virtually absent. The antitrust authorities therefore seem to make inefficient use of the information they usually gather on the demand and cost structure. In this paper we show how it is possible, by using a specific collusive equilibrium, to simulate the coordinated effect of a concentration. We apply Friedman's notion of "balanced temptations", which refers to a model characterized by a unique collusive equilibrium and by only one parameter-the common critical discount factor-which can measure the stability of a cartel. It appears that this equilibrium-a great deal similar to the Nash bargaining solution-accommodate demand and cost asymmetries. A merger that modifies such asymmetries would therefore not exercise any relevant effect on cartel stability. Finally, we expect from our analysis to detect a coordinated effect especially in those cases where a unilateral effect arises.
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