Merger effects with product complementarity: Evidence from Colombia's telecommunications

Mergers of firms producing complementary products entail two opposing effects: Lower prices, because they may internalize the impact of the complementarity, and higher prices, because the firms gain the ability to price discriminate. I use Colombian data to analyze mergers between firms providing complementary telecommunication services. I estimate a discrete choice model of demand for bundled fixed-line and mobile internet services, in which the degree of either substitutability or complementarity among products is a parameter of interest. Counterfactual experiments using the estimated model indicate pro competitive effects of mergers with complements: despite a small increase in the price of standalone goods, consumer surplus increases. (C) 2019 Elsevier B.V. All rights reserved.