Review of Industrial Organization

, Volume 15, Issue 3, pp 205–217 | Cite as

Effects of Assumed Demand Form on Simulated Postmerger Equilibria

  • Philip Crooke
  • Luke Froeb
  • Steven Tschantz
  • Gregory J Werden
Article

Abstract

This paper investigates the properties of four demand systems used to predict the effects of differentiated products mergers: the Almost Ideal Demand System (AIDS), logit, linear, and log-linear (constant elasticity). In Monte Carlo experiments, these demand systems yield significantly different predictions, although all are calibrated to the same the same, randomly generated, premerger relative quantities and demand elasticities. The predicted price increase is greatest with log-linear demand, followed by the AIDS. The linear and logit demand forms result in significantly lower postmerger prices. The results highlight the importance of the inherent higher-order properties of demand systems, i.e., their “curvature.”

Mergers antitrust AIDS logit Computed Nash Equilibria 

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Copyright information

© Kluwer Academic Publishers 1999

Authors and Affiliations

  • Philip Crooke
    • 1
  • Luke Froeb
    • 1
  • Steven Tschantz
    • 1
  • Gregory J Werden
    • 2
  1. 1.Vanderbilt UniversityNashvilleU.S.A
  2. 2.U.S. Department of JusticeWashingtonU.S.A

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