The impact of mergers on prices and variety and evaluating merger simulations: evidence from the UK car industry

Abstract

In my thesis I examine how prices and variety are affected from mergers, analyzing the effect of six mergers in the UK car market. These mergers are those of: Seat by VAG in 1986, Jaguar by FORD in 1990, Saab by GM in 1990, Skoda by VAG in 1991, Rover by BMW in 1994 and Mazda by FORD in 1996. In the first chapter, I use a difference-in-differences methodology to examine how mergers affected prices; only the results of the Mazda–Ford and Saab-GM mergers are robust enough to conclude that they have an effect on prices. The first seems to increase prices while the second one decreases them. In the second chapter I examine the effect on variety. From my results it seems that mergers certainly affect variety but not necessarily in a negative manner since the mergers of Skoda – VAG and Rover – BMW led to greater variety. In the third chapter I use merger simulation techniques to simulate the effect on prices from the Mazda-Ford merger and then discuss its predicting power, comparing them with the difference-in-difference methodology.