An empirical Analysis of the Counter-factual: A Merger and Divestiture in the Australian Cigarette Industry

Vivienne Pham and David Prentice
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Vivienne Pham: Department of Economics and Finance, La Trobe University

Working Papers from School of Economics, La Trobe University

Abstract: In this paper we empirically analyse two counter-factual situations facing an anti-trust authority following the merger of two of the largest international cigarette companies. First we estimate a nested logit model of demand for cigarettes. The implied elasticity of demand for smoking and implied marginal costs are both broadly consistent with the limited independent estimates available. We then use the model to simulate the proposed merger and the partial divestiture that was accepted by the Australian anti-trust authority. A comparison of the relative price changes predicted by the divestiture simulation with the actual post-divestiture price changes shows the model successfully anticipated the behaviour of the divested brands. This suggests structural econometric analysis using a nested logit may be usefully utilised by anti-trust authorities to assess the welfare implications of proposed mergers and partial divestitures.

Pages: 40 pages
Date: 2010-11
New Economics Papers: this item is included in nep-cmp, nep-com and nep-dcm
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Citations: View citations in EconPapers (2)

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Related works:
Working Paper: An empirical analysis of the counterfactual: a merger and divestiture in the Australian cigarette industry (2010)
Working Paper: An empirical Analysis of the Counter-factual: A Merger and Divestiture in the Australian Cigarette Industry (2010)
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