Jean-Pierre Dubé
"Product Differentiation and Mergers in the

Carbonated Soft Drink Industry "
CSIO Working Paper #0015

Abstract

Economists increasingly rely on structural methods to assess mergers in differentiated products industries. They typically estimate aggregate demand models using market level data, requiring a trade-off between the scope of products considered and the implied underlying consumer behavior.

Instead, I use a unique micro data set containing detailed transaction-level informa-tion for a panel of household purchases of carbonated soft drinks. I estimate household demand for soft drinks, allowing for more realistic multi-item purchase behavior for a large set of product alternatives. Integrating across the predicted household purchases, I combine aggregate demand with a model of static oligopoly. Finally, I simulate the competitive impact of several soft drink mergers on equilibrium prices and quantities. I compare my results with the popular aggregate mixed logit model. (JEL L15, C5, D4)

keywords: mergers, demand estimation, multiple-discreteness, structural modeling