Concentration, Retail Markups, and Countervailing Buyer Power: Evidence from Retail Lotteries

14 Pages Posted: 15 Jun 2021 Last revised: 22 Jul 2021

See all articles by Renato Giroldo

Renato Giroldo

affiliation not provided to SSRN

Brett Hollenbeck

University of California, Los Angeles (UCLA) - Anderson School of Management

Date Written: June 12, 2021

Abstract

In this note, we investigate the causal link between market concentration and markups in a retail setting. We study the Washington retail cannabis industry, which features exogenous variation in market concentration that resulted from retail licenses being awarded via lotteries. We observe wholesale prices and can therefore directly compute transaction-level markups. We find a negative causal relationship between markups and concentration in this setting, where more concentrated markets have significantly lower markups, retail prices, and wholesale prices. The negative effect of concentration on prices provides direct evidence of countervailing buyer power by retailers. These results highlight the value of using industry specific data and rich models of competition to advance the debate on concentration and markups.

Keywords: markups, market concentration, retail, countervailing buyer power, cannabis policy

JEL Classification: L11, L22, L81

Suggested Citation

Giroldo, Renato and Hollenbeck, Brett, Concentration, Retail Markups, and Countervailing Buyer Power: Evidence from Retail Lotteries (June 12, 2021). Available at SSRN: https://ssrn.com/abstract=3865811 or http://dx.doi.org/10.2139/ssrn.3865811

Renato Giroldo

affiliation not provided to SSRN

Brett Hollenbeck (Contact Author)

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

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