Auckland University of Technology (AUT), Faculty of Business, Economics and Law, Auckland
The diversion ratio is a key ingredient for merger analysis, as mentioned in the new Horizontal Merger Guidelines (2010) in the U.S. and similar documents abroad. It is a measure of substitutability between merging goods, which determines the potential for price increase post-merger. There is little existing research on how the diversion ratio is to be estimated. This paper is the rst one to explore estimation issues through standard demand estimation techniques and how changes in the antitrust market de nition a ect the resultant diversion ratios. I use random draws of supermarket products from a supermarket dataset to show that the estimated diversion ratios are, in fact, not greatly a ected by market de nition. They have the same magnitude as baseline estimates and the rst signi cant gures vary within a small range.
horizontal merger unilateral price e ect di erentiated products upward pricing pressure diversion ratio elasticity