MERGER EFFICIENCIES IN THE U.S. BOTTLED WATER INDUSTRY

Abstract

This dissertation contributes to the literature concerning horizontal merger efficiencies and non-price competition in merger analysis. It focuses on the U.S. premium bottled water industry, where manufacturers face both price and non-price competitions. Chapter 1 gives an overview of this dissertation and chapter 2 to chapter 4 are three papers that the dissertation features.

In chapter 2, I study the market power and marginal cost efficiency that was created following the merger of Coca-Cola and Glaceau in the U.S. premium bottled water market by assuming a vertical relationship between upstream manufactures and downstream retailers. In this framework, bottled water manufacturers are assumed to compete solely in prices and product attributes are exogenous. My supply-side model allows for a merger efficiency on Glaceau products by including an indicator for Glaceau products post-merger in the marginal cost function. With counterfactual simulations based on the demand and supply-side estimates, I show the merger has limited impacts on market power while marginal cost efficiency plays an important role in affecting the equilibrium prices and market shares post-merger.

In chapter 3, I develop a conceptual framework by extending the vertical relation in chapter 2 to incorporate multi-dimension non-price competitions. This conceptual framework can be applied to consumer good industries with both price and non-price competitions. In this chapter, I provide a detailed description of model derivations, estimation strategies, and counterfactual simulations.

In chapter 4, I apply the framework developed in chapter 3 to the merger of Coca-Cola and Glaceau and explore how horizontal merger efficiencies affect the equilibrium market outcomes considering both price and non-price competitions. To understand the underlying mechanisms that rationalize Glaceau's significant boosts in market shares, product varieties, and advertising expenditures post-merger, I estimate a structural demand and supply model where manufacturers choose wholesale prices, product varieties, and advertising, and I allow for several types of efficiencies on Glaceau. With counterfactual simulations, I show how marginal cost, product variety fixed cost, and advertising fixed cost efficiencies affect equilibrium market outcomes and consumer welfares.