Impact of Divestitures: A closer look at the P&G - Gillette Merger

Abstract

I document the effects of a divestiture in the US male deodorant industry following the Procter & Gamble-Gillette merger in 2005. Difference-in-Difference estimates show that prices of the divested and retained products fell post divestiture. I estimate a structural model and run simulations to determine the effect of the merger and the divestiture on prices and welfare. Ex-ante simulations show that, without accounting for merger efficiencies, the divestiture is predicted to decrease prices of deodorants on average by 0.21%, compared to a no divestiture situation and increases welfare by 0.086%. I also run simulations while accounting for merger efficiencies. I find that relative to a no merger baseline, the merger without divestiture raises prices by 0.57%. I also find that the divestiture helps decrease prices substantially by 2.7% relative to a no merger baseline and increases consumer welfare by 3.4%

Mir Adnan Mahmood
Mir Adnan Mahmood
PhD Candidate, Department of Economics

My research interests include Experimental Economics, Economics of Information and Microeconomic Theory.