Simulating the effects of an acquisition in the ferry market

Abstract

Numerical models have been applied in several merger studies during the last decade. The purpose of this paper is to discuss some modelling issues that have not been addressed in detail in the existing literature on merger simulation. First, we argue that in many instances both the pre- and the post-merger situation differ from the straightforward definition applied in most simulation studies. It is shown that the predictions from merger simulation studies may depend crucially on the definition of the pre- and post-merger alternatives. Second, we argue that the presence of multi-product firms complicates the numerical modelling. The calibration procedure is certainly not as simple as for single-product firms and it may be decisive for the simulation results. An acquisition in the ferry market for the transportation of cars and passengers between Norway and Denmark serves to illustrate the methodological issues.