I am very grateful to my thesis committee: David Besanko, Tim Conley, Sachin Gupta, and Rob Porter. I also thank Arie Beresteanu, Judy Chevalier, Anne Gron, Gunter Hitsch, Amil Petrin, and John Woodruff for their comments. I also benefitted from the detailed comments of an area editor and an anonymous reviewer, as well as seminar participants at the University of Chicago, Northwestern University, and the Econometric Society 2000 World Congress. The scanner data used in this study were provided by AC Nielsen. Financial support from a Northwestern University Dissertation Grant and from the Center for the Study of Industrial Organization are gratefully acknowledged.
Product Differentiation and Mergers in the Carbonated Soft Drink Industry
Article first published online: 17 OCT 2005
Journal of Economics & Management Strategy
Volume 14, Issue 4, pages 879–904, December 2005
How to Cite
Dubé, J.-P. (2005), Product Differentiation and Mergers in the Carbonated Soft Drink Industry. Journal of Economics & Management Strategy, 14: 879–904. doi: 10.1111/j.1530-9134.2005.00086.x
- Issue published online: 17 OCT 2005
- Article first published online: 17 OCT 2005
I simulate the competitive impact of several soft drink mergers from the 1980s on equilibrium prices and quantities. An unusual feature of soft drink demand is that, at the individual purchase level, households regularly select a variety of soft drink products. Specifically, on a given trip households may select multiple soft drink products and multiple units of each. A concern is that using a standard discrete choice model that assumes single unit purchases may understate the price elasticity of demand. To model the sophisticated choice behavior generating this multiple discreteness, I use a household-level scanner data set. Market demand is then computed by aggregating the household estimates. Combining the aggregate demand estimates with a model of static oligopoly, I then run the merger simulations. Despite moderate price increases, I find substantial welfare losses from the proposed merger between Coca-Cola and Dr. Pepper. I also find large price increases and corresponding welfare losses from the proposed merger between Pepsi and 7 UP and, more notably, between Coca-Cola and Pepsi.