Empirical Studies of Retail Markets
Saturday, Jan. 7, 2017 3:15 PM – 5:15 PM
- Chair: Julie Holland Mortimer, Boston College
How Do Vertical Contracts Affect Product Availability? An Empirical Study of the Grocery Industry
AbstractProducers frequently provide financial incentives to retailers in order to gain distribution for their products. These payments often take the form of vendor allowances: lump-sum transfers to retailers that do not directly depend on volume. To quantify the size of vendor allowances and their effects on product assortments and welfare, I develop a framework to identify lump-sum transfers using only data on retail prices, sales, and assortments. Without making any assumptions about producer and retailer bargaining, set estimates of vendor allowances are recovered. Additionally, by assuming that producers make take-it-or-leave-it offers, point estimates can be obtained. Lower bounds from set estimates imply that, on average, vendor allowances amount to at least 5% of retailer revenues. I apply model estimates to simulate how market outcomes change in the absence of vendor allowances. Counterfactual simulations predict that retailers fare worse, product variety is reduced as retailers replace “niche” products with “mainstream” options, but consumers nevertheless are better off. Small producers, which offer high-velocity products, increase market distribution and profits, but, absent marginal cost data, consequences for large producers are uncertain.
Discrete Prices and the Incidence and Efficiency of Excise Taxes
AbstractThis paper uses detailed UPC-level data from Nielsen to examine the relationship between excise taxes, retail prices, and consumer welfare in the market for distilled spirits. Empirically, we document the presence of a nominal rigidity in retail prices that arises because firms largely choose prices that end in ninety-nine cents and change prices in whole-dollar increments. Theoretically, we show that this rigidity can rationalize both highly incomplete and excessive pass-through estimates without restrictions on the underlying demand curve. A correctly specified model, such as an (ordered) logit, takes this discreteness into account when predicting the effects of alternative tax changes. We show that explicitly accounting for discrete pricing has a substantial impact both on estimates of tax incidence and the excess burden cost of tax revenue. Quantitatively, we document substantial non-monotonicities in both of these quantities, expanding the potential scope of what policymakers should consider when raising excise taxes.
Better Together? Performance Dynamics in Retail Chain Expansion before and after Mergers
AbstractThis paper evaluates how mergers affect the performance efficiency of retail chains. We estimate a dynamic model of retail expansion using data on convenience-store chains in Japan before and after an actual merger event. Our estimation allows for the presence of performance efficiency, in the form of serially correlated state variables that evolve both endogenously and stochastically. The estimates reveal that although the merged firm benefited from lower expansion costs, underlying performance efficiency for the merged entity did not improve following the merger, and such changes in performance varied across markets. Simulation analysis reveals the dampened performance is associated with the merged firm's diminished ability to retain efficiency gains from one year to the next. However, these negative effects can be mitigated if the merged firm inherits the primitives behind the performance efficiency of the more dominant merging party.
- L1 - Market Structure, Firm Strategy, and Market Performance
- L2 - Firm Objectives, Organization, and Behavior