Abstract
I quantify efficiencies that were created following a horizontal between Coca-Cola and Glaceau, the manufacturer of Vitaminwater and Smartwater, in the U.S. premium bottled water market. I estimate a structural demand and supply model where manufacturers choose advertising, product variety (number of UPCs) and wholesale prices, and I allow for several types of efficiencies. With counterfactual simulations, I show how marginal cost, product variety fixed cost, and advertising fixed cost efficiencies affected equilibrium market outcomes. I find that, compared to a no merger baseline in year 2009, the reduced the prices of Glaceau products by 3.5%-5.2% and increased product varieties by 18.8%-35.8%, advertising of Vitaminwater by 53.9%. Besides, the increased market shares of Glaceau products by 40.1%-60.7% and raised consumer surplus by about 22%. These results suggest that, despite a recent focus on mergers that appear to have had negative consequences, some mergers yield benefits.
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