Welfare and the case of recent mergers in the iron ore industry

This paper reconstructs the view of the European Commission regarding the allowance of a merger between two Brazilian iron ore mining companies, CVRD and Caemi, using data on the DRI pellet market. By using a simulation model, it is possible to directly simulate the total welfare effects from the merger and hence evaluate the merger from a new perspective. The results from the simulations suggest that the welfare effects are negative from the merger between CVRD and Caemi, which contradicts the final conclusion drawn by the European Commission in its decision. By performing different simulations between hypothetical merger candidates, our results show that only mergers between small candidates have the potential to be welfare enhancing.
Keywords: Welfare; iron ore; merger; simulation model; Cournot

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