Thursday, June 29, 2017
Giannis Karagiannis (University of Macedonia, Department of Economics) ; Magnus Kellermann (The Bavarian State Research Center for Agriculture) ; Simon Pröll (University of Natural Resources and Life Sciences Vienna, Institute of Sustainable Economic Development) ; and Klaus Salhofer (University of Natural Resources and Life Sciences Vienna, Institute of Sustainable Economic Development) examine Markup and Product Differentiation in the German Brewing Sector.
ABSTRACT: In this paper we provide a method to separate the markup from product differentiation from other sources of market power, i.e. collusive behavior or market intransparency, based on the estimation of a single reduced form equation. We apply this method to a sample of 118 German breweries, since beer is a differentiated product and at the same time the sector has repeatedly been subject to collusive behavior. Our empirical results show that the “general” markup goes beyond the markup from product differentiation, but the latter accounts for most of the deviation of prices from marginal costs. Moreover, typically for a market with monopolistic competition, we observe average costs above marginal costs and, hence, a high markup does not necessarily translate into a high a profit margin.