Monday, April 9, 2012
Posted by D. Daniel Sokol
Juan Luis Jimenez (Facultad de Economía, Empresa y Turismo Universidad de Las Palmas de Gran Canaria) and Jordi Perdiguero (Faculty of Economics, University of Barcelona) ask Mergers and difference-in-difference estimator: why firms do not increase prices?
ABSTRACT: Difference-in-Difference (DiD) methods are being increasingly used to analyze the impact of mergers on pricing and other market equilibrium outcomes. Using evidence from an exogenous merger between two retail gasoline companies in a specific market in Spain, this paper shows how concentration did not lead to a price increase. In fact, the conjectural variation model concludes that the existence of a collusive agreement before and after the merger accounts for this result, rather than the existence of efficient gains. This result may explain empirical evidence reported in the literature according to which mergers between firms do not have significant effects on prices.