Merger Simulation Models: Part 1

Merger simulation aiming to predict price changes of a merger follows three
distinct steps.
1) The first step specifies and estimates a demand system.
2) The second step makes an assumption about the equilibrium behavior,
typically a multi-product Bertrand-Nash equilibrium to compute the products
current profit margins and their implied marginal costs.
3) The third step usually assumes that marginal costs are constant, and predicts
how prices will change after the merger, accounting for increased
market power, cost efficiencies and perhaps remedies.