September 9, 2019, 14:00–15:30
Industrial Organization seminar
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.