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  5. Testing Conduct
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Testing Conduct

Paper Session

Monday, Jan. 5, 2026 1:00 PM - 3:00 PM (EST)

Philadelphia Marriott Downtown, Room 403
Hosted By: Industrial Organization Society
  • Chair: Matt Weinberg, Ohio State University

Learning Firm Conduct: Pass-Through as a Foundation for Instrument Relevance

Adam Dearing
,
Cornell University and NBER
Lorenzo Magnolfi
,
University of Wisconsin-Madison
Daniel Quint
,
University of Wisconsin-Madison
Christopher J. Sullivan
,
University of Wisconsin-Madison
Sarah B. Waldfogel
,
University of South Carolina

Abstract

Researchers often test firm conduct models using pass-through regressions or instrumental variables (IV) methods. The former has limited applicability; the latter relies on potentially irrelevant instruments. We show the falsifiable restriction underlying the IV method generalizes the pass-through regression, and cost pass-through differences are the economic determinants of instrument relevance. We analyze standard instruments' relevance and link instrument selection to target counterfactuals. We illustrate our findings via simulations and an application to the Washington marijuana market. Testing conduct using targeted instruments, we find the optimal ad valorem tax closely matches the actual rate.

Identifying Cartels that Operate via Market Division

Allan Collard-Wexler
,
Duke University

Abstract

[no abstract]

Conduct and Collusion in the U.S. Labor Market

Brad Setzler
,
Massachusetts Institute of Technology, Pennsylvania State University and NBER

Abstract

[no abstract]

A Large-Scale Evaluation of Merger Simulations

Vivek Bhattacharya
,
Northwestern University and NBER
Gastón Illanes
,
Northwestern University and NBER
Avner A. Kreps
,
Northwestern University
José D. Salas
,
Northwestern University
David Stillerman
,
American University

Abstract

Prospective merger simulations are a commonly used tool in antitrust, but evidence about their accuracy is limited. We study 92 consummated mergers in consumer packaged goods and compare the realizations of price changes with predictions from merger simulations. Predicted price changes are correlated with, but typically larger than, realized price changes. Merger simulations have limited predictive power but are still typically more predictive than relying solely on structural presumptions. We use the departure between realization and predictions to estimate supply-side changes after the merger and find a role for both synergies and a departure from Bertrand-Nash conduct post-merger.

Discussant(s)
Gloria Sheu
,
Federal Reserve Board
Joe Harrington
,
University of Pennsylvania
Matt Weinberg
,
Ohio State University
Lorenzo Magnolfi
,
University of Wisconsin-Madison
JEL Classifications
  • L1 - Market Structure, Firm Strategy, and Market Performance