Zhao, Wei (2013): Estimating Dynamic Merger Effciencies with an Application to the 1997 Boeing-McDonnell Douglas Merger.
Preview |
PDF
MPRA_paper_63184.pdf Download (1MB) | Preview |
Abstract
I evaluate the welfare effects of the 1997 merger between Boeing and McDonnell Douglas in the medium-sized, wide-bodied aircraft industry. I develop an empirical model of multi-product firms, allowing for both learning-by-doing and product innovation in a dynamic game to quantify merger efficiency. Merger efficiency from learning-by-doing is then disentangled from both the effects of innovation and market power. The results show that the primary benefits from the Boeing-McDonnell Douglas merger come from accelerated learning-by-doing. Taking account of all static and dynamic effects, net consumer surplus is found to have increased by as much as $1.57 billion. In contrast, a static model ignoring learning-by-doing and innovation predicts a consumer loss of approximately $20 billion. These results show that ignoring dynamic effects can lead to biased results and erroneous policy decisions regarding the welfare effects of proposed mergers.
Item Type: | MPRA Paper |
---|---|
Original Title: | Estimating Dynamic Merger Effciencies with an Application to the 1997 Boeing-McDonnell Douglas Merger |
Language: | English |
Keywords: | Merger Efficiency, Dynamic Oligopoly Model, Learning-by-doing, innovation, Aircraft Industry Merger |
Subjects: | C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C73 - Stochastic and Dynamic Games ; Evolutionary Games ; Repeated Games L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets L - Industrial Organization > L4 - Antitrust Issues and Policies > L40 - General L - Industrial Organization > L6 - Industry Studies: Manufacturing > L62 - Automobiles ; Other Transportation Equipment ; Related Parts and Equipment |
Item ID: | 63184 |
Depositing User: | Dr. Wei Zhao |
Date Deposited: | 25 Mar 2015 09:51 |
Last Modified: | 01 Oct 2019 21:22 |
References: | Andrews, D. W. K. (1991): Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation," Econometrica, 59(3), 817-858. Benkard, C. (2000): Learning and Forgetting: The Dynamics of Aircraft Production," American Economic Review, 90(4), 1034-1054. (2004): A Dynamic Analysis of the Market for Wide-Bodied Commercial Aircraft," Review of Economic Studies, 71, 581-611. Benkard, C., A. Bodoh-Creed, and J. Lazarev (2010): Simulating the dynamic effects of horizontal mergers: US airlines," Discussion paper. Besanko, D., U. Doraszelski, Y. Kryukov, and M. Satterthwaite (2010): Learning-by-doing, Organizational Forgetting, and Industry Dynamics," Econometrica, 78(2), 453-508. Chandra, A., and D. Staiger (2007): Productivity spillovers in healthcare: evidence from the treatment of heart attacks," Journal of Political Economy, 115, 103. Chen, J. (2009): The Effects of Mergers with Dynamic Capacity Accumulation," International Journal of Industrial Organization, 27(1), 92-109. Doraszelski, U., and A. Pakes (2007): A Framework for Applied Dynamic Analysis in IO," Handbook of Industrial Organization, 3, 1887-1966. Ericson, R., and A. Pakes (1995): Markov-Perfect Industry Dynamics: A Framework for Empirical Work," Review of Economic Studies, 62(1), 53-82. Goettler, R. L., and B. R. Gordon (2011): Does AMD Spur Intel to Innovate More?," Journal of Political Economy, 119(6), 1141-1200. Gowrisankaran, G. (1999): A dynamic model of endogenous horizontal mergers," RAND Journal of Economics, 30(1), 56-83. Gowrisankaran, G., V. Ho, and R. J. Town (2006): Causality, Learning and Forgetting in Surgery," Working Paper. Grossman, M. G., and E. Helpman (1995): Chapter 25 Technology and trade," Handbook of International Economics, pp. 1279-1337. Hashmi, A. R., and J. V. Biesebroeck (2013): The Relationship between Market Structure and Innovation in Industry Equilibrium: A Case Study of the Global Automobile Industry," Review of Economics and Statistics, forthcoming. Irwin, A. D., and P. J. Klenow (1994): Learning-by-Doing Spillovers in the Semiconductor Industry," Journal of Political Economy, 102(6), 1200-1227. Jeziorski, P. (2013a): Effects of Mergers in Two-sided Markets: The U.S. Radio Industry," American Economic Journal: Microeconomics, forthcoming. (2013b): Estimation of cost synergies from mergers: Application to the U.S. radio," RAND Journal of Economics, forthcoming. Levitt, S. D., J. A. List, and C. Syverson (2013): Toward an Understanding of Learning by Doing: Evidence from an Automobile Plant," Journal of Political Economy, 121(4), 643-681. Liu, H. (2010): Dynamics of Pricing in the Video Game Console Market: Skimming or Penetration?," Journal of Marketing Research, 47(3), 428-443. Niosi, J., and M. Zhegu (2010): Multinational Corporations, Value Chains and Knowledge Spillovers in the Global Aircraft Industry," International Journal of Institutions and Economies, 2(2), 109-141. Nocke, V., and M. D. Whinston (2010): Dynamic Merger Review," Journal of Political Economy, 118, 1200-1251. Nosko, C. (2014): Competition and Quality Choice in the CPU Market," Working Paper. Ohashi, H. (2005): Learning by doing, export subsidies, and industry growth: Japanese steel in the 1950s and 1960s," Journal of International Economics, 66(2), 297-323. Pakes, A., and P. McGuire (1994): Computing Markov-Perfect Nash Equilibria: Numerical Implications of a Dynamic Differentiated Product Model," RAND Journal of Economics, 25(4), 555-589. Schwoon, M. (2008): Learning by doing, learning spillovers and the diffusion of fuel cell vehicles," Simulation Modelling Practice and Theory, 16(9), 1463-1476. Small, K. A., and H. S. Rosen (1981): Applied Welfare Economics with Discrete Choice Models," Econometrica, 49(1), 105-130. Stahl, J. (2009): A dynamic analysis of consolidation in the broadcast television industry," Finance and Economics Discussion Series. Thompson, P. (2001): How Much Did the Liberty Shipbuilders Learn? New Evidence for an Old Case Study," Journal of Political Economy, 109(1), 103-137. (2007): How Much Did the Liberty Shipbuilders Forget?," Management Science, 53(6), 908-918. Thornton, R., and P. Thompson (2001): Learning from experience and learning from others: An exploration of learning and spillovers in wartime shipbuilding," The American Economic Review, 91(5), 1350-1368. Trajtenberg, M. (1989): The Welfare Analysis of Product Innovations, with an Application to Computed Tomography Scanners," Journal of Political Economy, 97(2), 444-479. Wright, T. (1936): Factors affecting the cost of airplanes," Journal of Aeronautical Sciences. |
URI: | https://mpra.ub.uni-muenchen.de/id/eprint/63184 |