Definition of relevant market in beer industry: Application of LA-AIDS model


HOUŠKA Tomáš BIL Jaroslav

Year of publication 2012
Type Article in Proceedings
Conference Proceedings of the 30th International Conference Mathematical Methods in Economics 2012
MU Faculty or unit

Faculty of Economics and Administration

Field Economy
Keywords competition; beer; demand estimation; LA-AIDS
Description In last ten years, the increasing market concentration in the area of beer brewing has lead to an increasing number of merger cases assessed by national competition authorities and European Commission. As the first and very crucial step in every competition case is the definition of a relevant market, competition agencies has been faced with the question whether beer is a relevant market in itself or whether narrower relevant product markets exist. The aim of the article is to investigate wheter there exists a relevant product market narrower than beer. We use multilevel budget LA-AIDS model to estimate the demand elasticities of the biggest beer brands on US scanner data. Based on the estimates, we then perform a critical loss analysis to investigate whether the beer categories constitute separate relevant markets. Our results show that a hypothetical monopolist over any one of our proposed segments would have enough power to implement the SSNIP, making each of the analyzed segments a separate relevant market.
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