Oligopolistic Price Leadership and Mergers: The United States Beer Industry
58 Pages Posted: 6 Sep 2018 Last revised: 21 Jun 2019
Date Written: May 31, 2019
We study an infinitely-repeated game of oligopolistic price leadership in which one firm, the leader, proposes a supermarkup over Bertrand prices to a coalition of rivals. We estimate the model with aggregate scanner data on the beer industry and find the supermarkup accounts for 6% of price. Price leadership increases profit by 8.9% relative to Bertrand competition, and decreases consumer surplus by nearly four times the change in profit. We use the model to simulate the ABI/Modelo merger. The merger relaxes incentive compatibility constraints and increases the equilibrium supermarkup. Merger efficiencies do not mitigate---and can amplify---this coordinated effect.
Keywords: price leadership, coordinated effects, mergers
JEL Classification: K21, L13, L41, L66
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