Applied Microeconomics/IO Seminar: Temporary price reductions and competition: Evidence from a merger.

Abstract:

This paper examines the importance of temporary price reductions in understanding competition. We examine a concentrated industry with some evidence of cooperation in price setting. We examine the US macro-beer market. We construct a model of conduct that allows producers to set both a regular price and a sale price. This model allows recovery of marginal costs and markups. We make use mixed strategy conditions required for the producers to allow retailers to choose the timing of sales to aid in the recovery of markups from sale frequencies and prices. We estimate parameters from a virtual stakes super game, that embody collusive behavior. We find that after a competitive shake up, that is the merger between Miller and Coors, that competition (measured as the markup over cost) decreased in the years after.