Monday, November 5, 2007
Posted by D. Daniel Sokol
Sofia Berto Villas-Boas of Berkeley's Department of Agricultural and Resource Economics has an interesting new article Using Retail Data For Upstream Merger Analysis in the current issue of the Journal of Competition Law and Economics.
ABSTRACT: The typical situation that antitrust authorities face is to analyze a proposed manufacturer merger using scanner data at retail level. I start with a benchmark model of manufacturers' and retailers' sequential pricing behavior. Then I perform counterfactual experiments to explore the relationship between downstream retailer pricing models and the resulting estimates of upstream mergers, in the absence of wholesale prices. Looking at scanner data for the ground coffee category sold at several retail chains in Germany, I find that not considering retail pricing explicitly when analyzing the potential consequences of an upstream merger results in simulated changes in welfare that are significantly different given the underlying model of retail pricing behavior. These findings are relevant for competition policy, and authorities should consider incorporating the role of retailers in upstream merger analyses, especially in the presence of increasingly consolidated retail food markets.