Oligopolistic Price Leadership and Mergers: The United States Beer Industry

65 Pages Posted: 6 Sep 2018 Last revised: 8 Apr 2021

See all articles by Nathan Miller

Nathan Miller

Georgetown University - Robert Emmett McDonough School of Business

Gloria Sheu

Board of Governors of the Federal Reserve System

Matthew Weinberg

Drexel University - Department of Economics & International Business

Date Written: April 5, 2021

Abstract

We study a repeated game of oligopolistic price leadership in which one firm, the leader, proposes market-specific supermarkups over Bertrand prices to a coalition of rivals. Supermarkups and the firms' marginal costs can be recovered from scanner data on prices and quantities using the structure of the model. In an application to the beer industry, we find that price leadership increases profit relative to Bertrand competition by 17% in fiscal years 2006 and 2007, and by 22% in 2010 and 2011, with the change mostly due to consolidation. We use counterfactual simulations to examine two mergers, and find that they relax binding incentive compatibility constraints and increase supermarkups, to the detriment of consumers. These coordinated effects arise even with efficiencies sufficient to offset price increases under Bertrand competition.

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 (April 5, 2021). 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

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Matthew Weinberg

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

3141 Chestnut St.
Philadelphia, PA 19104
United States

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