Quality assurance mechanisms in agrifood: The case of the Spanish fresh meat sector

The largest fresh meat brand names in Spain are analyzed here to study how quality is signaled in agribusiness and how the underlying quality -assurance organizations work. Results show, first, that organizational form varies according to the specialization of the brand name. Publicly-controlled brand names are grounded on market contracting with individual producers, providing stronger incentives. In contrast, private brands rely more on hierarchy, taking advantage of its superiority in solving specific coordination problems. Second, the seemingly redundant coexistence of several quality indicators for a given product is explained in efficiency terms. Multiple brands are shown to be complementary, given their specialization in guaranteeing different attributes of the product.Quality assurance, co-branding, agriculture, vertical integration, contracts

Efficient Remedies for Breach of Warranty

This article attempts to suggest valuable refinements and extensions of the economic theory of warranty by explicitly considering the choice of remedies for breach of warranty in conjunction with the choice of warranty protection itself. In particular, it offers explanations for the prevalence of replacement terms rather than refund terms in warranties. Economists studying the general issue of breach of contract have noted that the choice of remedy has important implications for risk sharing, renegotiation, transaction-specific investment, and the incentive to breach.5 This article derives much of its insight from the recognition that work on the economics of contract breach has much to say that is relevant to the economics of warranties

Price and Brand Competition between Differentiated Retailers: A Structural Econometric Model

We develop a model of competition between retailer chains with a structural estimation of the demand and supply in the supermarket industry in France. In the model, supermarkets compete in price and brand offer over all food products to attract consumers, in particular through the share of private labels versus national brands across all their products. Private labels can serve as a differentiation tool for the retailers in order to soften price competition. They may affect the marginal costs of all products for the retailer because of eventual quality differences and also by helping retailers to obtain better conditions from their manufacturers. Differentiation is taken into account by estimating a discrete-continuous choice model of demand where outlet choice and total expenditures are determined endogenously. On the supply side, we consider a simultaneous competition game in brand offer and price between retailers to identify marginal costs. After estimation by simulated maximum likelihood, the structural estimates allow to simulate the effect on the equilibrium behavior of retailer chains of a demand shock through an increase in transportation costs for consumers and a merger between two retailer chains.

Identifying and characterising price leadership in British supermarkets

Price leadership is a concept that lacks precision. We propose a deliberately narrow, falsifiable, definition then develop it, illustrate its feasibility and test it using the two leading British supermarket chains. We find both firms engaging in leading prices upward over a range of products, with the larger being initially more dominant but the smaller increasing leadership activity to take overall leadership over time. However, more price leadership events are price reductions than price increases, consistently led by the smaller firm. Nevertheless, the increases are of larger monetary amounts than the falls, so average basket price increases over time

Asymmetric Equilibria and Non-Cooperative Access Pricing in Telecommunications

This paper looks at competition in the Telecommunications industry with non-linear tariffs and network based price discrimination. Allowing for asymmetric networks and non-cooperatively chosen access prices simultaneously allows to explicitly derive non-reciprocal equilibrium access price choices that are above the efficient level.Asymmetric Networks, Access Pricing, Interconnection, Competition Policy, Telecommunications

Network Effects and Switching Costs: two short essays for the new New Palgrave

We briefly survey the economics of network effects and switching costs (in 3,400 words). For comprehensive coverage of the same ground see Farrell and Klemperer’s 60,000-word contemporaneous survey, available at www.paulklemperer.org

Antitrust analysis of supermarkets: global concerns playing out in local markets

This paper reviews the basic components of antitrust analysis for the supermarket industry, including definition of product and geographic markets and the measurement of market power. The analysis of prices and profits in a market structure context remains important, especially in countries such as Australia with very high supermarket concentration. Firm and brand level New Empirical Industrial Organisation models of demand and oligopoly pricing also provide insights for evaluating antitrust claims. Recent research on vertical pricing games and price transmission expand the analysis to market channel pricing issues, including coalescing power by supermarkets and food manufacturers. The issues and approaches explained in this paper are relevant for policy-orientated research on supermarkets worldwide, including Australia.market concentration, market definition, Nash–Bertrand conduct, price–cost margin, price transmission rate, unilateral and coordinated market power, Agribusiness, Industrial Organization,

Bargaining, Mergers, and Technology Choice in Bilaterally Oligopolistic Industries

This paper provides a conceptual framework of multilateral bargaining in a bilaterally oligopolistic industry to analyze the motivations for horizontal mergers, technology choice, and their welfare implications. We first analyze the implication of market structure for the distribution of industry profits. We find that retailer mergers are more likely (less likely) if suppliers have increasing (decreasing) unit costs, while supplier mergers are more likely (less likely) if goods are substitutes (complements). In a second step we explore how market structure affects suppliers' technology choice, which reflects a trade-off between inframarginal and marginal production costs. We find that suppliers focus more on marginal cost reduction if (i) retailers are integrated and (ii) suppliers are non-integrated. In a final step we consider the whole picture where both market structure and (subsequent) technology choice are endogenous. Analyzing the equilibrium market structure, we find cases where retailers become integrated to induce suppliers to choose a more efficient technology, even though integration weakens their bargaining position. In this case the merger benefits all parties, i.e., suppliers, retailers, and even consumers. However, we also show that the equilibrium market structure does often not maximize welfare. ZUSAMMENFASSUNG - (Verhandlungen, Fusionen und Technologiewahl in bilateralen Oligopolen) Diese Arbeit entwickelt einen Modellrahmen für multilaterale Verhandlungen in bilateralen Oligopolen, um die Fusions- und Technologiewahlanreize der Unternehmen sowie deren Wohlfahrtswirkungen zu untersuchen. Der wichtigste Anwendungsbereich des Modells sind die Firmenbeziehungen zwischen Einzelhandelsketten und Herstellerfirmen. Beide Handelsstufen sind weder vollkommen monopolisiert noch perfekt fragmentiert. Vielmehr stehen auf jeder Handelsstufe wenige "große" Firmen miteinander in Konkurrenz. Die Geschäftbeziehungen zwischen Herstellern und Einzelhandel sind zu dem multilateral angelegt, so dass ein Hersteller seine Produkte typischerweise an mehrere Einzelhandelsketten verkauft und Unternehmen des Einzelhandels mehrere Herstellermarken anbieten. Der Aufsatz analysiert zuerst, wie die Marktstruktur die Verteilung der Industrieprofite zwischen den Firmen bestimmt, woraus sich eindeutige Bedingungen für profitable Zusammenschlüsse ableiten lassen: Firmen des Einzelhandels stellen sich durch einen Zusammenschluss besser (schlechter), wenn die Herstellerfirmen mit steigenden (fallenden) Durchschnittskosten produzieren. Herstellerfirmen profitieren durch einen Zusammenschluss, wenn sie substituierbare Güter anbieten, während sie sich durch eine Fusion schlechter stellen, wenn sie komplementäre Güter absetzen. Der nächste Schritt der Untersuchung erkundet die Wirkungen der Marktstruktur auf die Technologiewahlanreize der Hersteller, wobei die Adaption einer neuen Technologie einerseits mit niedrigeren marginalen Kosten und andererseits mit höheren inframarginalen (oder Fix-) Kosten einhergeht. Es zeigt sich, daß Herstellerfirmen höhere Anreize zur Senkung ihrer marginalen Kosten haben, wenn (i) der Einzelhandel vollständig monopolisiert ist und (ii) die Herstellerfirmen nicht integriert sind. Die Untersuchung stellt damit die aktuellen Konzentrationsprozesse im Einzelhandel in ein neues Licht. Zusammenschlüsse zwischen Einzelhändlern führen dazu, dass Hersteller einen relativ höheren Anteil ihrer marginalen Kosten tragen müssen, was wiederum die Anreizen zur Verringerung derselben vergrößert. Dieses Ergebnis steht in einem scharfen Gegensatz zu der häufig geäußerten Hypothese, dass "mächtige" Einzelhandelsketten die Gewinne der Herstellerfirmen schmälern und folglich die Innovationstätigkeit im Produktionssektor nachhaltig beeinträchtigen. In dem letzen Schritt der Untersuchung werden die Marktstruktur und die nachfolgende Technologiewahl der Herstellerfirmen endogen bestimmt. Die Analyse der gleichgewichtigen Marktstruktur bei endogener Technologiewahl fördert die Möglichkeit "strategischer Fusionen" zwischen Einzelhandelsfirmen zu Tage. In diesem Fall schließen sich zwei Einzelhändler zusammen, um die Herstellerfirmen zur Wahl der effizienten Technologie zu bewegen, obwohl die Einzelhändler durch die Fusion ihre Verhandlungsposition gegenüber den Herstellern schwächen. Interessanterweise stellen sich durch "strategische Einzelhandelsfusionen" alle Marktpartizipanten besser: die Hersteller, der Einzelhandel und die Konsumenten. Es zeigt sich allerdings auch, dass die endogen bestimmte Marktstruktur nicht immer die Wohlfahrt maximiert.Bilateral Oligopoly, Antitrust, Bargaining Power, Merger, Retailing, Technology Choice

Secret contracting in multilateral relations

We develop a general, tractable framework of multilateral vertical contracting, which places no restriction on tariffs and fully accounts for their impact on downstream competition. Equilibrium tariffs are cost-based and replicate the outcome of a multi-brand oligopoly, a finding in line with the analysis of a recent merger. We provide a micro-foundation for this framework, before analyzing the effect of RPM and price parity provisions, and of resale vs. agency business models. Finally, we extend the framework to endogenize the distribution network; we also consider mergers and show that their impact on the distribution network can dominate price effects

A Model of Multi-pass Search: Price Search across Stores and Time

In retail settings with price promotions, consumers often search across stores and time. However the search literature typically only models one pass search across stores, ignoring revisits to stores; the choice literature using scanner data has modeled search across time, but not search across stores in the same model. We develop a multi-pass search model that jointly endogenizes search in both dimensions; our model nests a nite horizon model of search across stores within an in nite horizon model of inter-temporal search. We apply our model to milk purchases at grocery stores; hence the model also accounts for repeat purchases across time, inventory holding by households and grocery basket effects. We note that the special case without these additional features can be used to study one time purchases with repeat store visits as in the case of durable goods and online shopping. We formulate the empirical model as a mathematical program with equilibrium constraints (MPEC) and estimate it allowing for latent class heterogeneity using an iterative E-M algorithm. In contrast to extant research, we nd that omitting the temporal dimension underestimates price elasticity. We attribute this difference to the relative frequency of household stockouts and purchase frequency in the milk category. Interestingly, increasing the promotional frequency (while reducing its depth to maintain the mean and variance of prices across all stores) can increase loyalty to the household’s preferred store