Concentration and Markups: Evidence from Retail Lotteries

10 Pages Posted: 12 Apr 2022

See all articles by Brett Hollenbeck

Brett Hollenbeck

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

Renato Giroldo

affiliation not provided to SSRN

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Abstract

In this note, we provide a cleanly identified and empirically relevant example of a setting where an increase in market concentration caused lower prices and markups. This result contradicts some widely used models of competition and highlights the value of richer models of firm behavior and competition in the debate over concentration and market power. Our setting is the Washington retail cannabis industry, which features exogenous variation in market concentration that resulted from retail licenses being awarded via lotteries. The data allow us to compute markups directly by observing wholesale prices. We find a negative causal relationship between markups and concentration, where exogenously more concentrated markets have significantly lower markups and prices.

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

Suggested Citation

Hollenbeck, Brett and Giroldo, Renato, Concentration and Markups: Evidence from Retail Lotteries. Available at SSRN: https://ssrn.com/abstract=4081911 or http://dx.doi.org/10.2139/ssrn.4081911

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

Renato Giroldo

affiliation not provided to SSRN

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