Wednesday, June 19, 2019

Cartel Damages in the Shadow of Store Brands: An Empirical Investigation

Roman Inderst, Goethe University Frankfurt and Marco J.W. Kotschedoff, Goethe University Frankfurt - Faculty of Economics and Business Administration offer Cartel Damages in the Shadow of Store Brands: An Empirical Investigation.

ABSTRACT: When manufacturers collude to raise wholesale prices for national brands, the input prices of store brands may not be directly affected, either as they are procured competitively from different sources or as retailers are vertically integrated. In this article we explore both conceptually and empirically how the prices of store brands should still react to the infringement and thereby how consumer damages could increase while retailer damages are mitigated. We identify two effects on store brand prices, a “demand diversion effect” and a “margin effect,” which have opposite signs. In the analyzed case of the German coffee cartel, we find that store brand prices increased considerably in the shadow of the cartel and we estimate how this allowed retailers to mitigate damages. The latter finding raises the question of to what extent such mitigation should be accounted for in follow-on cases.

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