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Slide 1

U.S. Federal Trade Commission Seal with the words "Federal Trade Commission" and "For the Consumer" superimposed over a partial photograph of a statue of a man and a horse






US Workshop on Merger Enforcement
February 17-19, 2004

Dr. Valerie Rabassa
Chief Economist Office
European Commission

European Union Flag


Slide 2

Introduction

  • Case COMP/M.2978 Lagardére/Natexis/VUP

pink arrow pointing right

    one of the leading 2003 European merger case in the book industry

  • One of the main particularity of the case: the econometric study carried out for the European Commission by Professor Marc Ivaldi1

  • The magnitude of the unilateral effects are the result of this study on the retail market of books on general literature by the retailers to the final consumer


Slide 3

Unilateral effects in Lagardére/Natexis/VUP

  • In this study, the unilateral effects measure the impact of a concentration on the public selling prices, the final consumers‘2 surplus and the profits of the companies

  • Before the merger with VUP, if Hachette Livre (subsidiary of Lagardère) decided to increase prices unilaterally, some of these final consumers would turn to other competing publishers, among which VUP

  • As a result of the concentration with VUP, Hachette absorbs a part of these competitive pressures, and can thus recover a part of these customers


Slide 4

The Econometric Model used: the Nested Logit Model

  • The theoretical framework used to analyze the market demand in the general literature book is the nested logit model from the family of the discrete choice model. The nested logit model is of significant interest in differentiated industries like the book industry

  • Consumers make a discrete choice among a set of different alternatives called nest and then choose a book in the concerned nest

    A sample nested model showing a typical tree structure. Level 1 are categories of books (romance, thriller, and so on). Level 2 are groups of books within each category on level 1. [D]

  • Estimation: 3SLS


Slide 5

Results

  • As the result of the merger, on the retail markets of all general literature books (pocket and hardcover formats) by the retailers to the final consumer, the study indicates that prices of the books published would increase significantly

  • Consumers’ surplus would also fall significantly which is equivalent to a non-negligible part of the turnover of industry in the field of general literature

  • The price increase is estimated for different market sizes:

A simple line graph showing that price increases as market size shrinks. [D]


Slide 6

Robustness of the Results

  • Using the Bootstrap method to construct confidence intervals, there is only 5% probability that the price rise due the concentration could not be included in a significant interval of +/- 1% of the mean value of the price change

  • A very high number of observations : +/- 10 000

  • Significance of the different statistical tests

  • Stability of the main parameters

    • The marginal utility of a given book
    • The intra-brand correlation


FOOTNOTES

1. "Evaluation Econométrique des Effets de la Concentration Lagardére-VUP sur le Marché du Livre de Littérature Générale", Jérôme Foncel et Marc Ivaldi, revised and increased final version, September 2003.

2. In the absence of reliable data available on the level of the discounts granted to the retailers.