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 are: consumer prices increased due to higher retail market power (7% for the regions with the largest predicted increase in retail concentration). The good news are that merger efficiencies in retailing exist and can finally be measured. For instance, 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 only by a small amount (about 0.4%) given that market power effects and efficiency gains cancel out at the national level. However, there 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 most consumers in rural areas.   

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).

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

We study empirically the price effects of upstream cartels that sell through downstream retailers to final consumers. We focus on a German coffee producer cartel that colluded under two different regimes: (i) involving wholesale prices in 2003 and (ii) with additional resale price maintenance from 2005 to 2008. Our first and main insight is that collusive wholesale prices affect consumers but only in the short run. We quantify an average overcharge of 3% for the collusive regime without resale price maintenance in 2003. The cartel, however, broke down a few months after the announcement. The collusive overcharge increased to 14% after the introduction of resale price maintenance, and the cartel lasted for a few years. We conclude that resale price maintenance facilitates better organization of the cartel, as evidenced by the higher overcharges and longer cartel duration. Our second insight is that loss-leading incentives of retailers destabilize upstream cartels.

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]