Empirical Studies of Market Power and Markups
Paper Session
Sunday, Jan. 8, 2023 1:00 PM - 3:00 PM (CST)
- Chair: Alexander MacKay, Harvard University
Scalable Demand and Markups
Abstract
We study changes in markups across 72 product markets from 2006-2018. A growing literature has documented a rise in markups over time using a production function approach; we instead employ the standard microeconomic method, which is to estimate demand and then invert the firms’ first-order pricing conditions to infer their markups. To make the method scalable, we propose estimating nested logit demand models and using household panel data to automate the assignment of products to nests. Our results indicate an overall upward trend in markups between 2006 and 2018, with considerable heterogeneity across and within product markets. We find that changes in households’ price sensitivity are the primary driver of markup increases, with changes in firm ownership and product assortment playing a much smaller role.Have Mergers Raised Prices? Evidence from US Retail
Abstract
Households often fail to refinance mortgages, foregoing substantial - We document the price and quantity effects of all US retail mergers from 2006–2017 associated with deals larger than $340 million. Prices increase by 0.49% on average for merging parties, with an interquartile range of almost 5%. Non-merging parties exhibit slightly smaller price changes on average. Price changes are correlated with changes in concentration but not final concentration, and they tend to be concentrated in the year following the merger. Mergers that were unsuccessfully challenged exhibit larger price increases. Through the lens of a simple model, we estimate that agency preferences are such that they aim to block mergers where prices are expected to increase by more than 3.7–5.6% overall, or about 8.1–8.8% for merging parties.The Welfare Impact of Market Power. The OPEC Cartel
Abstract
We provide an empirical framework to measure the welfare impact of market power that materializes through coordination of production (i.e. cartel) in the global crude oil market. We leverage unique micro data on cost and production to quantity the dead weight loss and productivity inefficiency due to the OPEC cartel. We introduce a framework that recognizes the likely inter-temporal tradeoff that producers face when setting production levels. We rely on an estimated demand system for oil and we consider a range of counterfactual oil supply functions to quantity the welfare loss due to market power. The counterfactual supply curves imply counterfactual price paths that suggest a sizeable impact of market power on the global oil market. This together with the information on field-level costs allows for a model-consistent notion of lost gains from trade due to market power. We find that the welfare impact is large, implying a world-wide revenue tax (on every aspect of economic activity) of about 0.15%, or put differently about 5 trillion USD (in 2014).JEL Classifications
- D4 - Market Structure, Pricing, and Design
- L2 - Firm Objectives, Organization, and Behavior