Arm's-length transactions as a source of incomplete cross-border transmission: The case of autos

A large share of international trade occurs through intrafirm transactions. We show that this common cross-border organization of the firm has implications for the welldocumented incomplete transmission of shocks across such borders. We present new evidence of an inverse relationship between a firm’s outsourcing of inputs and its rate of exchange rate pass-through. We then develop a structural econometric model with final assemblers and upstream parts suppliers to quantify how firms’ organization of their activities across national borders affects their pass-through behavior

Big Data in Firms and Economic Research

This paper discusses how firms use “big data” and the role and challenges for economists when getting involved in big data research. The firms’ success stories have taken advantage of building the biggest databases, using the best extraction tools, and using the fastest algorithms for data analysis and management. Although there are already great examples of economists entering big data research, analysts involved at present are mostly statisticians and computer scientists. The challenges economists face lie in computation, publication, and replication when using proprietary big data. The opportunities for economists lie in modeling and designing frameworks for analyzing large observational data panels, as well as developing empirical designs and strategies that are motivated by a model framework; in this way, economists can guide large-scale big data experiments toward identifying causal effects, rather than just correlations

Using Retail Scanner Data for Upstream Merger Analysis: Counterfactual Experiments in the Retail Coffee Market

The typical situation faced by antitrust authorities is to analyze and rule on a proposed merger by two or more manufacturers using scanner data at retail-level in a particular industry. This paper presents a simple framework to assess merger welfare effects in markets where both upstream and downstream firms make pricing decisions. I start with a benchmark model of manufacturers’ and retailers’ sequential pricing behavior. Then using counterfactual experiments, I explore the relationship between downstream retailer pricing models and the resulting estimates of upstream mergers. This exercise is done 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 implies simulated changes in welfare that are significantly different given the underlying model of retail pricing behavior. For instance, through counterfactual simulations I find that, if retailers behave as Bertrand-Nash the welfare estimates are not significantly different from those obtained when not considering retailers, but when retail pricing departs from Nash-pricing behavior the welfare estimates can be significantly different from those estimated without considering retailer models explicitly

Wholesale Price Discrimination: Inference and Simulation

This paper makes inferences about wholesale price discrimination and uniform wholesale pricing policy in a national grocery retail market where wholesale price discrimination occurs. I estimate demand and a supply model of multiple retailers’ and manufacturers’ oligopoly-pricing behavior where manufacturers may engage in wholesale price discrimination, which allows me to recover brand level marginal costs in this market. Then I simulate the welfare effects of no wholesale price discrimination via uniform price regulation given observed data on retail and input prices and retail quantities sold and not available data on wholesale prices. This approach uses retail level scanner data on coffee produced by multiple manufacturers sold at the largest retail outlets in Germany. The estimates of uniform wholesale pricing in this market suggest there to be positive welfare effects from preventing wholesale price discrimination, originating from positive effects on consumer surplus of the same magnitude as on joint vertical producer surplus. I show through simulations that estimated welfare decreases, due to higher retail prices under no wholesale price discrimination, for more collusive retail and manufacturer counterfactual scenarios. Finally, and in terms of counterfactual demand simulations, I find that banning wholesale price discrimination may be actually welfare improving the less heterogeneous and the more elastic demand is

Vertical relationships between Manufacturers and Retailers: Inference with Limited Data

In this paper different models of vertical relationships between manufacturers and retailers in the supermarket industry are compared. Demand estimates are used to compute price-cost margins for retailers and manufacturers under different supply models when wholesale prices are not observed. The purpose is to identify which set of margins is compatible with the margins obtained from estimates of cost, and to select the model most consistent with the data among non-nested competing models. The models considered are : (1) a simple linear pricing model; (2) a vertically integrated model; and (3) a variety of alternative (strategic) supply scenarios that allow for collusion, non-linear pricing and strategic behavior with respect to private label products. Using data on yogurt sold in several stores in a large urban area of the United States the results imply that wholesale prices are close to marginal cost and that retailers have pricing power in the vertical chain. This is consistent with non-linear pricing by the manufacturers, or high bargaining power of the retailers

An empirical investigation of the welfare effects of banning wholesale price discrimination

Economic theory does not provide sharp predictions on the welfare effects of banning wholesale price discrimination: if downstream costs differences exist then discrimination shifts production inefficiently; towards high cost retailers; so a ban increases welfare; if differences in price elasticity of demand across retailers exist; discrimination may increase welfare if more market is covered; so a ban reduces welfare. Using retail prices and quantities of coffee brands sold by German retailers; I estimate a model of demand and supply and separate cost and demand differences. Simulating a ban on wholesale price discrimination has positive welfare effects in this market; and less if downstream cost differences shrink; or with less competition

USING RETAIL DATA FOR UPSTREAM MERGER ANALYSIS

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. I