Effects of Assumed Demand Form on Simulated Postmerger Equilibria

Effects of Assumed Demand Form on Simulated Postmerger Equilibria 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.” http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Industrial Organization Springer Journals

Effects of Assumed Demand Form on Simulated Postmerger Equilibria

Loading next page...
 
/lp/springer_journal/effects-of-assumed-demand-form-on-simulated-postmerger-equilibria-2YebxzGYOH
Publisher
Kluwer Academic Publishers
Copyright
Copyright © 1999 by Kluwer Academic Publishers
Subject
Economics; Industrial Organization; Microeconomics
ISSN
0889-938X
eISSN
1573-7160
D.O.I.
10.1023/A:1007730632277
Publisher site
See Article on Publisher Site

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.”

Journal

Review of Industrial OrganizationSpringer Journals

Published: Oct 15, 2004

References

You’re reading a free preview. Subscribe to read the entire article.


DeepDyve is your
personal research library

It’s your single place to instantly
discover and read the research
that matters to you.

Enjoy affordable access to
over 18 million articles from more than
15,000 peer-reviewed journals.

All for just $49/month

Explore the DeepDyve Library

Search

Query the DeepDyve database, plus search all of PubMed and Google Scholar seamlessly

Organize

Save any article or search result from DeepDyve, PubMed, and Google Scholar... all in one place.

Access

Get unlimited, online access to over 18 million full-text articles from more than 15,000 scientific journals.

Your journals are on DeepDyve

Read from thousands of the leading scholarly journals from SpringerNature, Elsevier, Wiley-Blackwell, Oxford University Press and more.

All the latest content is available, no embargo periods.

See the journals in your area

DeepDyve

Freelancer

DeepDyve

Pro

Price

FREE

$49/month
$360/year

Save searches from
Google Scholar,
PubMed

Create lists to
organize your research

Export lists, citations

Read DeepDyve articles

Abstract access only

Unlimited access to over
18 million full-text articles

Print

20 pages / month

PDF Discount

20% off