Working Papers

The Price(s) of Variety. Empirical Evidence from the French Biscuit Market 

This empirical study aims at shedding light on how the variety decisions of retailers affect the profit sharing in their bilateral relationships with manufacturers. To this extent, we study the biscuit market, where variety is an important determinant of consumer welfare and develop a supply model on the vertical relationship between retailers and manufacturers that explicitly considers strategic retail decisions on store variety. The number of products offered by the retail stores affects consumer choices, which establishes a link between consumer preferences for variety and the product line length. Bargaining on wholesale prices and retail price decisions happen subsequent to the retail variety choice, which allows to analyze the effect of variety on retail- and wholesale prices. We find that due to variety retailers get a larger slice from a larger pie---meaning that both the total industry profits and the retail profit share positively correlate to larger variety. In a next step, we quantify the effect of how retail and wholesale prices change with retail variety. Finally, we implement several counterfactuals to investigate how retailer buyer power---due to (i) retail mergers, (ii) increase in private label shares, and (iii) dynamic bargaining tactics---affects the retailers' choice of product variety in their stores.


Does Resale Price Maintenance Buy Variety? Cartel Damage and the Efficiency Defense in the German Coffee Market

Does resale price maintenance (RPM) buy product variety? RPM raises the prices consumers pay, but the classic efficiency defense holds that the higher margins buy better services, higher quality, and more product variants. We evaluate this trade-off for the 2003--2008 German cartel on ground coffee, where an upstream manufacturer cartel involved almost all retailers through RPM. We provide the first structural damage estimate for such a cartel and weigh the harm against new product introduction in the single-portion market. Our model combines random-coefficients demand with a supply side in which the colluding manufacturers set retail prices. We find a cartel price overcharge of about 4.5%. About five-sixths of the consumer harm is a transfer to the cartel, at least 13~million euros in overcharges; the rest is deadweight loss. However, on the benefit side we find little evidence that the rents bought product variety. Although the cartel members introduced some new products in the adjacent, non-colluding single-portion segment, most of the innovation came from the non-cartel innovators. Thus, the efficiency defense finds little support, and our results point to the anti-competitive nature of price floors.


Submissions 

When Do Switching Costs Lower Prices? Multi-Product Ownership and the Dynamic Edgeworth Effect [Latest Version]


Standard theory predicts that switching costs discipline introductory prices: firms lower prices to win customers they can later lock in and harvest. We show the opposite arises when a single firm owns two products with asymmetric loyalty (one with high switching costs, the other with none or lower). Switching costs then turn anti-competitive, and the firm raises the price of the weak-loyalty product (no-names, private labels, generics) to steer first-time buyers into the brand, which leads to higher prices. We formalize this incentive, the dynamic Edgeworth effect, in a structural model of invest-and-harvest pricing and estimate it on household scanner data from the German diaper market, where the estimated consumer lock-in is worth 33\% of the average mature-stage brand price. Our counterfactuals reveal a sign reversal: switching costs are pro-competitive when the two products have different owners, but anti-competitive when one firm owns both, where they raise average prices by about 1.2% (rising to 17.2% at twice the level). The burden falls on the private label, which lower-income households disproportionately buy. Because ownership structure is observable, it offers regulators a simple first-pass screen for markets where this effect can arise.


Winners and losers of higher minimum wages. Empirical Evidence from U.S. Grocery Retailing. Link


Who wins and who loses when the minimum wage rises? Grocery retailing concentrates both low-wage labor and low-income spending, yet only the wage gain is observed. We quantify the unobserved incidence: how a minimum-wage increase splits between higher consumer prices and lower retailer mark-ups. Because marginal costs and mark-ups are invisible in scanner data, we recover them from a random coefficient logit demand model and retailers’ pricing behavior. These objects, with observed prices, serve as outcomes in a staggered difference-in-differences design that exploits the timing and magnitude of state minimum-wage increases. For fluid milk, our case study, higher minimum wages raise marginal costs and prices, but prices rise by less than cost: pass-through is about 74 percent, robust across five alternative estimators (0.69 to 0.78). Retailers absorb the remaining quarter of the proportional cost increase through compressed mark-up ratios. A pooled basket of eleven top-selling categories shows the same pattern, with smaller and less precise pass-through. Most consumers therefore lose through higher grocery prices, and retailers lose through thinner margins. The minimum-wage workers the policy targets win in real terms, but higher prices erode part of the intended gain.



Publications (3 top-field, ranked A according to CNRS) 

Local Market Structure and Consumer Prices: Evidence from a Retail Merger, with Jan Philip Schain & Joel Stiebale 

In this article, we conduct an ex-post evaluation of a merger between two German grocery retailers. The bad news is: consumer prices increased due to greater retail market power (7% for the regions with the largest predicted increase in retail concentration). The good news is that merger efficiencies in retailing exist and can finally be measured. with our novel methodology. We find that prices declined in regions that did not see a rise in retail concentration but were potentially affected by cost savings within the merged entity. Overall, the merger raised average consumer prices by only a small amount (about 0.4%) given that market power effects and efficiency gains cancel out at the national level. However, there are distributional effects: Regions with high competition (mainly cities) are less affected by increased market power and benefit more from efficiency gains, which implies that the merger hurt consumers in rural areas most. 


How Resale Price Maintenance and Loss Leading affect Upstream Cartel Stability: Anatomy of a Coffee Cartel, joint with Emanuel Holler 

In many recent cases (e.g., coffee, sweets, pet food, beer, beauty and personal hygiene, baby food, and baby cosmetics), we observe that producers collude on wholesale prices AND include retailers into the cartel by also raising prices retail prices (i.e., resale price maintenance). This is puzzling at first: Why would producer cartels want to raise final consumer prices? This is counterintuitive because the producer cartel collects profits from collusive wholesale prices times demand. But demand is decreasing in final retail prices, which likely reduces profits. In our study, we provide empirical evidence (testing predictions of Hunold & Muthers, 2021) that the producer cartel needs to involve retailers into the cartel (by raising retail prices and share part of the profits) because the retailer would refuse collusive wholesale prices without participating through resale price maintenance. 

NB: In the paper, we refer to two court decisions by the Higher Court of Appeal. Our translations can be found here: [OLG Translation 2014] [OLG Translation 2018]


Vertical Restraints, Pass-Through, and Market Definition: Evidence from Grocery Retailing, with Justus Haucap, Ulrich Heimeshoff, Gordon J. Klein & Christian Wey, 

Pass-through rates are widely discussed in the economic literature, e.g., in cartel damage claims or optimal taxation. We show that pass-through rates can also have significant effects in market definition exercises if industries are vertically structured. In general, higher pass-through rates lead to larger upstream market definitions according to the SSNIP test. Taking the example of grocery retailing, upstream markets (at the manufacturer level) can easily be defined too widely if the assumed pass-through rates are too high and vice versa. We illustrate our theoretical considerations with a detailed empirical analysis of German retailing markets (see Figure 3 for a graphic summary).