Mergers with differentiated products: the case of the ready-to-eat cereal industry

Traditional merger analysis is difficult to implement when evaluating merge rs in industries with differentiated products. I discuss an alternative, wh ich consists of demand estimation and the use of a model of postmerger cond uct to simulate the competitive effects of a merger. I estimate a brand-lev el demand system for ready-to-eat cereal using supermarket scanner data and use the estimates to (1) recover marginal costs, (2) simulate postmerger p rice equilibria, and (3) compute welfare effects, under a variety of assump tions. The methodology is applied to Jive mergers, two of which occurred an d for which I compare predicted to actual outcomes.