Demand Side Merger Efficiencies

Posted by D. Daniel Sokol

David Reitman, Charles River Associates, and Dipan Ghosh, Charles River Associates have posted Demand Side Merger Efficiencies.

ABSTRACT: Mergers can generate demand side efficiencies that benefit customers in a number of ways, including procurement savings, transaction efficiencies, and quality improvements. We show that per-unit demand side efficiencies and marginal cost efficiencies of the same magnitude have an equivalent impact on the post-merger market in terms of output and welfare. Consequently, there is no reason to distinguish between marginal cost savings and demand side per-unit efficiencies when evaluating the impact of a merger. We demonstrate how various techniques for evaluating the impact of mergers – compensating marginal cost reductions, upward pricing pressure, and merger simulation – can be readily adapted to incorporate demand side as well as supply side efficiencies.