Common Ownership and Competition in the Ready-to-Eat Cereal Industry

74 Pages Posted: 19 Jan 2021 Last revised: 19 Jun 2021

See all articles by matthew.backus@columbia.edu Backus

matthew.backus@columbia.edu Backus

Columbia University

Christopher T. Conlon

Leonard N. Stern School of Business - Department of Economics

Michael Sinkinson

Yale SOM

Date Written: January 2021

Abstract

Models of firm conduct are the cornerstone of both theoretical and empirical work in industrial organization. A recent contribution (Berry and Haile, 2014) has suggested the use of exclusion restrictions to test alternative conduct models. We propose a pairwise testing procedure based on this idea and show that the power of the test to discriminate between models is tied to the formulation of those restrictions as moments and how they reflect the nonlinearity of equilibrium markups. We apply this test to the ready-to-eat cereal market using detailed scanner and consumer data to evaluate the “common ownership” hypothesis, which has received significant attention. Although we show that the potential magnitude of common ownership effects would be large, our test finds that standard own-firm profit maximization is more consistent with the data.

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Suggested Citation

Backus, matthew.backus@columbia.edu and Conlon, Christopher T. and Sinkinson, Michael, Common Ownership and Competition in the Ready-to-Eat Cereal Industry (January 2021). NBER Working Paper No. w28350, Available at SSRN: https://ssrn.com/abstract=3768263

Christopher T. Conlon

Leonard N. Stern School of Business - Department of Economics ( email )

269 Mercer Street
New York, NY 10003
United States

Michael Sinkinson

Yale SOM ( email )

127 Wall Street
New Haven, CT 06511
United States

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