Divestiture requirements as a tool for competition policy: A case from the Swedish beer market

We investigate the effect of divestitures on prices and welfare following the Carlsberg–Pripps merger in the Swedish beer market. Both difference-in-difference estimation and simulations using a random coefficients logit model suggest that divestitures are important for dampening price increases. Prices of divested brands fall by around 3% and the predicted price increase for Carlsberg falls from 3 to 1.6% as a result of the divestitures. To guide practice on divestitures, we investigate the role of the recipient and the number and characteristics of the divested products by simulating post-merger outcomes for all relevant cases. We find that in this setting with large multiproduct firms, the competition authority's most effective means to dampen adverse post-merger outcomes are to aim for a small recipient firm and attain a large number of divested products. Enforcing larger divestitures in terms of market share and raising the average cross-price elasticity between the merging parties' divested and retained products strengthen the dampening effect further. •We study the role of divestitures in a large merger on the Swedish beer market.•Diff-in-diff estimates suggest that prices of divested products fall by 3 %.•We base simulations on an estimated random coefficients logit demand system.•Price hikes for Carlsberg fall from 3 to 1.6 % as a result of divestitures.•We investigate what characteristics of divestitures that matter most for prices.