Oligopolistic Price Leadership and Mergers: The United States Beer Industry

58 Pages Posted: 6 Sep 2018 Last revised: 21 Jun 2019

See all articles by Nathan Miller

Nathan Miller

Georgetown University - Robert Emmett McDonough School of Business

Gloria Sheu

Government of the United States of America - Department of Justice

Matthew Weinberg

Drexel University - Department of Economics & International Business

Date Written: May 31, 2019

Abstract

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

Suggested Citation

Miller, Nathan and Sheu, Gloria and Weinberg, Matthew, Oligopolistic Price Leadership and Mergers: The United States Beer Industry (May 31, 2019). Available at SSRN: https://ssrn.com/abstract=3239248 or http://dx.doi.org/10.2139/ssrn.3239248

Nathan Miller (Contact Author)

Georgetown University - Robert Emmett McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States

Gloria Sheu

Government of the United States of America - Department of Justice ( email )

Matthew Weinberg

Drexel University - Department of Economics & International Business ( email )

3141 Chestnut St.
Philadelphia, PA 19104
United States

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