The effect of the Telefonica–BellSouth merger on the Argentine cellular telephone market

The aim of this paper is to evaluate the effects of the merger between Telefonica and BellSouth, which took place in December 2004, in the Argentine cellular telephone market. In this market the merger under analysis is horizontal. The evaluation is carried out by performing a demand estimation, using the PCAIDS model, and a marginal cost estimation, using supply prices and the elasticities inferred from the previously estimated demands. With those results, a merger simulation is run under different hypotheses related to possible marginal cost reductions. The merger is found to be able to lower supply prices for relatively small marginal cost reductions. This is basically due to the fact that the individual firms’ demands are highly elastic, and that the cross elasticity between the brands affected by the merger is relatively small.