Current Projects and Working Papers

When Retail Mergers benefit Producers, Processors, and Consumers:  Empirical Evidence from German Retailing [slides] 

Increasing concentration (e.g., through merger activity) is one of the major policy concerns of our times. Retail mergers are different than other mergers because larger retailers can (i) distribute the share of costs over more units (fixed cost degression) and (ii) demand lower input prices when buying more items (buyer power). Our paper analyzes the effects of a merger between a German supermarket chain and a soft discounter on retail prices, retail costs, and buyer power. Using data from two complementary grocery retailing categories, we disentangle three post-merger effects: market power, efficiency gains in distribution, and buyer power increase vis-a-vis the suppliers (i.e., the ability to negotiate lower input prices). We find that retailers decrease prices while being able to increase markups, which is caused by cost savings from fixed cost degression and increased buyer power. Although suppliers get lower prices, they benefit  nonetheless by selling more units at a lower price, which we explain with reduced double-markup inefficiencies.

When Switching Costs benefit Consumers. Evidence from a Market with Lock-in Effects [Job market paper: Latest Version]

Abstract: We analyze a long-standing controversial economic questions: Can we foster competition by stimulating consumer response in markets with switching costs? Our analysis actually shows the opposite effect, that is, markets are more competitive with switching costs than without. This counterintuititve result comes from a novel dynamic structural demand and supply model, where the main innovative ingredient is the pricing dynamics: firms compete for non-captive consumers by lowering their prices based on expected switching costs and then set profit-maximizing prices for captive consumers. We analyze a market with psychological switching costs (diapers) featuring no-name products, which have no, or lower, switching costs. Then, firms compete too fiercely for consumers, who, consequently, benefit from lower prices. Our results imply that many markets do not require policy interventions, which are often difficult or even impossible to design. 

Preliminary Work in Progress