Submissions 

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. 

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).