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Scenario-Based Quantitative Analysis of the Effects of Horizontal Merger in Iran’s Car Industry: Simulating Changes in Market Concentration and Consumer Welfare
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Habib Shahbazi *    |
| Agricultural Economics (Production and Management), Sayyed Jamaleddin Asadabadi University |
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Abstract: (23 Views) |
| This study investigates the potential consequences of merging Iran’s two largest automakers, Iran Khodro and SAIPA. The automotive industry, accounting for about 3.5 to 4 percent of GDP and generating nearly 400,000 jobs, is highly concentrated, with over 70 percent of the market controlled by these two firms. Such concentration makes any merger a possible driver of higher prices and reduced consumer welfare. To assess impacts, market shares from 2014 to 2024 were analyzed using multinomial logit (MNL) and constant elasticity of substitution (CES) demand models to measure consumer price sensitivity. The Herfindahl–Hirschman Index (HHI) was simulated before and after the merger through first‑order and linear approximations. Results show HHI rose from 7067 in 2014 to 8679 in 2019, accompanied by average price increases of up to 50 percent. Consumer welfare declined by 34 percent under MNL and 21 percent under CES. With rising competitor shares in later years, HHI fell to 6187 and welfare loss dropped below 20 percent. Findings indicate mergers may reduce competition and harm consumers, but strategies such as cost reduction, quality improvement, technology localization, and antitrust measures can mitigate negative effects. |
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| Keywords: Horizontal merger, Herfindahl–Hirschman Index (HHI), Consumer welfare, Iran Car industry, Numerical simulation |
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Full-Text [PDF 1011 kb]
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Type of Study: Research |
Subject:
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