Testing justification for segment based relevant product market definition in merger control: evidence from Turkey

Abstract

In this paper, we aim to investigate whether different segments of beer products can constitute a separate relevant product market within the framework of competition law. This question gained importance when the merger between Anheuser-Busch InBev and SABMiller became subject to a Phase II investigation by the Turkish Competition Authority in March 2016, which ultimately ended with an unconditional clearance decision, based on an intact "beer" market, recognizing that the relevant product market regarding beer brands in Turkey must be wider than the premium segment. To answer the research question above concerning relevant product market definition, we implement a Hypothetical Monopolist Test in two steps. In the first step, the aggregate price elasticity of demand for the premium segment is estimated econometrically by using a nested logit demand model. This model tests whether products in the same group are closer substitutes than products in different groups. We conclude that the correlation of beers within the same group is not statistically significant. Since the data in our study are obtained at the retail level, the price elasticity of demand at the brewer level is derived from the estimate at the retailer level by using very conservative assumptions with regard to the passthrough rates. In the second step, the hypothetical monopolist test is implemented by using the critical elasticity which is calculated by using the profit margins for the premium beer segment at brewer/supplier level under both 5 percent and 10 percent SSNIP. It is seen that the actual elasticity of demand for the premium segment is larger than the critical elasticity (in absolute value) under both scenarios. These findings show that the relevant product market regarding beer brands in Turkey must be wider than the premium segment. © The Author 2017. Published by Oxford University Press. All rights reserved.