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Mark-Ups and Common Ownership: An IO Perspective

Paper Session

Friday, Jan. 3, 2020 2:30 PM - 4:30 PM (PST)

Manchester Grand Hyatt, America's Cup AB
Hosted By: Industrial Organization Society
  • Chair: Julie Holland Mortimer, Boston College

Common Ownership and Competition in the Ready-To-Eat Cereal Industry

Matthew Backus
,
Columbia University
Christopher T. Conlon
,
New York University
Michael Sinkinson
,
Yale University

Abstract

If firms maximize the value of their shareholders’ portfolios, and shareholders also own shares in competing firms, firms may have an incentive to soften competition in the product market. A controversial set of recent papers employ price-concentration regressions to show this may lead to lower output or higher prices in airlines and banks. We devise a structural test of firm conduct for differentiated product markets and apply our test to data from the ready to eat (RTE) cereal market. We find no evidence that suggests common ownership effects are present, though we show that the potential magnitude of such effects would be very large.

Structure, Conduct, and Contact: Competition in Closely-Related Markets

Alon Eizenberg
,
Hebrew University of Jerusalem
Dalia Shilian
,
Israel Consumer Protection and Fair Trade Authority

Abstract

We perform a simultaneous empirical study of competitive conduct in 40 product categories of the Israeli food sector. In each category we estimate a differentiated product demand model, and compute several empirical indicators of the category's ability to support cooperative price equilibria. Specifically, we test the hypothesis that the data were generated by a cooperative pricing equilibrium, and compute threshold discount factors: those that would support a hypothetical collusive regime in a standard repeated-game framework. We then investigate several pervasive questions in the Industrial Organization literature. In particular, we examine the extent to which cooperative pricing regimes are facilitated by both within-category concentration and by cross-category interactions (multimarket contact). We further examine the relationship between a category's concentration and its aggregate demand elasticity. By combining these analyses we provide a multi-faceted picture of competition and concentration in closely related markets.

The Evolution of Market Power in the United States Auto Industry

Paul Grieco
,
Pennsylvania State University
Charles Murry
,
Boston College
Ali Yurukoglu
,
Stanford University

Abstract

We estimate markups and welfare in the U.S. car and light truck market from 1970-2015. During this time the set of available products changed dramatically. Some examples of these changes include the rise of import competition, the introduction of new body-styles, the change in automobile characteristics (such as size and fuel efficiency), and the introduction of new features (such as anti-lock brakes). We document these trends in the set of available products and relate them to trends in market power. We establish how market power is related to innovation in product characteristics and the speed at which competitors compete away these rents by introducing similar products.

Testing the Production Approach to Markup Estimation

Devesh Raval
,
Federal Trade Commission

Abstract

Under the underlying assumptions of the production approach to markup estimation, one should recover the same markup from any flexible input. I test this approach by comparing estimates of markups derived using labor and materials for four national manufacturing censuses and store-level data from a nationwide US retailer. Across all five datasets, I find that markups estimated using labor are negatively correlated with those estimated using materials, exhibit much greater dispersion, and have different trends over time. I also find different correlations with the degree of competition faced by the store for the retailer. I examine several mechanisms that may explain these findings, and find evidence that they are consistent with plant level heterogeneity in production technology. In order to successfully measure markups, the production approach will have to model such heterogeneity.
Discussant(s)
Amit Ghandi
,
University of Pennsylvania
Jonathan Williams
,
University of North Carolina-Chapel Hill
Matthew Weinberg
,
Ohio State University
Daniel Ackerberg
,
University of Texas-Austin
JEL Classifications
  • L1 - Market Structure, Firm Strategy, and Market Performance