Supermarket Choice and Supermarket Competition in Market Equilibrium

Multi-store firms are common in the retailing industry. Theory suggests that cross-elasticities between stores of the same firm enhance market power. To evaluate the importance of this effect in the U.K. supermarket industry, we estimate a model of consumer choice and expenditure using three data sources: profit margins for each chain, a survey of consumer choices and a data-set of store characteristics. To permit plausible substitution patterns, the utility model interacts consumer and store characteristics. We measure market power by calculating the effect of merger and demerger on Nash equilibrium prices. Demerger reduces the prices of the largest firms by between 2 and  3.8%  depending on local concentration; mergers between the largest firms lead to price increases up to  7.4%  .     

Downstream merger with upstream market power

We examine how a downstream merger affects input prices and, in turn, the profitability of a such a merger under Cournot competition with differentiated products. Input suppliers can be interpreted as ordinary upstream firms, or trade unions organising workers. If the input suppliers are plant-specific, we find that a merger is more profitable than in a corresponding model with exogenous input prices. In contrast to the received literature, we find that it can be more profitable to take part in a merger than being an outsider. For firm-specific input suppliers, on the other hand, results are reversed. We apply our model to endogenous merger formation in an international oligopoly, and show that the equilibrium market structure is likely to be characterised by cross-border merger.     

Product differentiation, cost‐reducing mergers, and consumer welfare

Abstract.  Cost synergies are an explicitly recognized justification for a two‐firm merger, and empirical techniques are now widely used to assess the impact of cost‐reducing mergers on prices and welfare in the post‐merger market. We show that if the merger occurs in a vertically product differentiated market, then the merger will lead to a reduction in product offerings that limits the usefulness of pre‐merger empirical estimates. Indeed, we further show that in such markets, two‐firm mergers will typically lead to higher prices regardless of the merger's cost savings. JEL classification: L10, L41     

A time series analysis of causality between aggregate merger and stock prices: the case of Canada

It is widely agreed that a positive relationship exists between measures of aggregate merger activity and measures of stock market performance, at least for the USA. Evidence from other countries is relatively sparse. in this paper we pursue the causality question using Canadian data. Most of the previous studies used only a bivariate system (merger and stock prices). We have extended the analysis to trivariate system (merger, stock prices and interest rate) to better reflect the capital market conditions argument for changes in merger activity. The results suggest a bidirectional causality between mergers and stock prices.     

Price-Matching Policies and Entry

A price-matching policy is a commonly observed pricing practice in retailing markets. When firms use this policy they are publicly committing themselves to match the prices of their competitors. The aim of this analysis is to show that, in a spatial free-entry model, the effects of a price-matching policy are an increase in the number of sellers, an increase in prices and a decrease in consumer surplus and social welfare. Moreover, there is the striking result that in a price-matching equilibrium an increase in the number of firms entering the market raises prices.     

Market power in Austrian food retailing: the case of milk products

An increasing market concentration in food retailing has generated concerns about the market power of retailers towards consumers and input suppliers. This is especially true for countries such as Austria, which has a CR-3 in food retailing greater than 75%. Based on a New Empirical Industrial Organization model we estimate the market power of food retailers towards consumers and input suppliers with respect to three groups of dairy products (drinking milk, cheese, butter including others). Our empirical results suggest that market power of retailing exists towards consumers (in particular in the case of drinking milk) and towards input suppliers (in particular in the case of butter and other milk products). Market power is more significant (in statistical terms) downstream than upstream. However, the impact of oligopsony power on input prices is stronger than the impact of oligopoly power on consumer prices.     

Technology Transfer and Merger Activities with Trade and Tariffs

In order to better understand the effects of globalization on merger incentives this paper considers a set of commonly observed mergers whereby a restructured target (with improved managerial or technical capability) continues to supply the market. In contrast to the market‐concentrating merger literature it finds that trade barriers tend to encourage mergers, including potentially welfare‐reducing, tariff‐jumping mergers. Multilateral trade liberalization, however, encourages welfare‐improving mergers. Hence, and despite the skepticism of regulatory authorities towards the existence of cost synergies as a consequence of mergers, this paper suggests that in order to assess the impact of trade liberalization under the WTO on merger incentives, and consequently on prices, quantities, and welfare, accurate information on ex ante cost differences and the transferability of managerial and technical techniques is required.     

How effective is European merger control?

This paper applies an intuitive approach based on stock market data to a unique dataset of large concentrations during the period 1990–2002 to assess the effectiveness of European merger control. The basic idea is to relate announcement and decision abnormal returns. Under a set of four maintained assumptions, merger control might be interpreted to be effective if rents accruing due to the increased market power observed around the merger announcement are reversed by the antitrust decision, i.e. if there is a negative relation between announcement and decision abnormal returns. To clearly identify the events' competitive effects, we explicitly control for the market expectation about the outcome of the merger control procedure and run several robustness checks to assess the role of our maintained assumptions. We find that only outright prohibitions completely reverse the rents measured around a merger's announcement. On average, remedies seem to be only partially capable of reverting announcement abnormal returns. Yet they seem to be more effective when applied during the first rather than the second investigation phase and in subsamples where our assumptions are more likely to hold. Moreover, the European Commission appears to learn over time.     

Human Capital and Growth: New Evidences from African Data

Assuming that all firms have rising marginal costs, merger between a dominant firm and one of the firms in the competitive fringe is considered. The effects on market price and output, profits and market power are shown when the dominant firm operates as a two-plant firm after merger and output arises from both plants. It is proved that if merger offers no efficiency gain, then market price always rises; and if merger results in efficiency gain, then market price falls if and only if there are sufficiently large number of firms in the fringe. In any case, there is profit incentive for merger to take place. [611]     

Imports and the structure of retail markets

Abstract We construct a model of trade with heterogeneous retailers to examine the effects of trade liberalization on retail market structure, imports and social welfare. We are especially interested in investigating the transmission of lower import prices into consumer prices and the effects of retail market regulation. The paper shows that changes in import prices may have large effects on consumer prices and import volumes when changes in retail market structure are taken into account, and that restrictions on retailing, as they occur in several countries, may significantly alter this transmission mechanism by reducing imports and raising consumer prices.     

Trade prices and supply in the UK economy

Current account imbalances are a major source of instability in the world monetary and trading system. Measures to correct these imbalances have largely involved adjustments to exchange rates. In the international trade literature, when the current account is in deficit, the Marshall-Lerner condition is sufficient for a successful devaluation. However, this partial equilibrium condition — apart from being based on the assumption that supply elasticities are infinite — abstracts from how the domestic economy responds to the change in relative prices. In this paper we develop a model of price and output determination in an open economy with imperpectly competitive markets, and draw a distinction between goods which are exported and those which are supplied to the domestic market. This means that we have to determine jointly both export prices and the domestic price of house sales. We show that as long as there is no money illusion in the labour market a fall in the nominal exchange rate raises domestic and export prices proportionally and leaves trade volumes unaffected. However, shifts in domestic absorption relative to overseas demand — by changing relative prices — cause shifts in the relative supply of exports and domestically sold goods and affect the trade balance. Thus fiscal and monetary measures directed towards reducing domestic absorption are more likely to be successful in correcting current account imbalances than exchange rate depreciation.     

Data frequency and exchange rate pass-through: Evidence from India's exports

This paper studies the pricing behavior of Indian exporters using both annual and monthly data in order to uncover the role of data frequency in determining variation in the degree of short and long-run exchange rate pass-through (ERPT). Export price data during the post-1991 economic reforms period is disaggregated at the two-digit industry level and using a novel methodology in the ERPT literature (cointegration for heterogeneous panels) cross-industry differences in adjustment are identified. We observe that there is clear evidence of incomplete ERPT to prices in India's export markets, after having controlled for the level of exchange rate volatility and domestic inflation as an indicator of variations in marginal cost. The empirical results indicate that monthly data reflect more incomplete ERPT to destination market prices, relative to annual data, in which all the short run rigidities are more likely to have been adjusted. Thus studies that use higher frequency data are more likely to find incomplete ERPT in the short-run, even in the context of an emerging market economy. In the long-run, incomplete ERPT subsists in a few industries for both data frequencies.     

Stock Market Fluctuations and Money Demand in Italy, 1913–2003

This paper examines the impact of stock market fluctuations on money demand in Italy from a long‐run perspective. The money demand function estimated by Muscatelli and Spinelli (2000) for a long time span is utilized as a benchmark, adding to the specification information on share prices from the Milan Stock Exchange Reform of 1913 to recent years. For a shorter time period (1938–2003), annual observations on stock market capitalization and turnover velocity are also considered. The empirical findings suggest that stock market fluctuations help to explain temporary movements in liquidity preference, rather than its secular patterns. Overall, a positive association emerges between an index of stock market prices that includes dividends and real money balances; however, the estimated long‐run relationship is unstable. In a dynamic, short‐term specification of money demand, the estimated coefficient of deflated stock prices is positive, and therefore compatible with a wealth effect, in the years 1913–1980, while in the last two decades a substitution effect has prevailed and the correlation between money and share prices has been negative. This is likely to reflect a change in financial structure and the increasing role of opportunity costs defined over a wider range of assets. These results are confirmed by data on stock market capitalization. Moreover, in the recent period, stock market turnover and money growth are positively correlated .     

Housing prices and tenure choice with asymmetric taxes and progressivity

This paper studies the effects of tax schedule changes on prices and tenure choice in the housing market. It is shown that, given the present asymmetric treatment of owner-occupants vs. renters, an increase in the degree of progressivity is likely to lead to an increasein the prices of both owner-occupied and rental housing. A numerical example indicates that the effects may be quite large. Equilibrium prices are calculated based on the actual Swedish income tax schedules for 1971 and 1979. According to these simulations the tax changes that took place between these years caused the price of owner-occupied houses to increase by around 30 percent, and the rent level to increase by 2 or 3 percent.     

Pricing flexibility under rate-of-return regulation: Effects on network infrastructure investment

When a commodity market relies upon a regulated network service industry—e.g., telecommunications, electricity, or natural gas transmission—economic efficiency in that commodity market is a crucial consideration for regulatory design. This is because insufficient infrastructure investment relative to network demand results in congestion. The extraction of associated rents has distortionary effects on commodity spot market prices. Greater regulatory flexibility in network pricing can alleviate such issues by cultivating the incentives needed for stakeholders to invest in transmission capacity. To illustrate this effect I derive and numerically solve stylized optimality conditions for access and usage prices for a gas pipeline operator under alternative regulatory models. My results have general implications for regulation in network infrastructure industries, as energy and telecommunications markets are expected to expand considerably over the coming decades.     

Repeated price competition between individuals and between teams

We conducted an experimental study of price competition in a duopolistic market. The market was operationalized as a repeated game between two “teams” with one, two, or three players in each team. We found that asking (and winning) prices were significantly higher in competition between individuals than in competition between two- or three-person teams. There were no general effects of team size, but prices increased with time when each team member was paid his or her own asking price and decreased when the team's profits were divided equally. This result is consistent with a simple model of individual learning.     

A Simple Model of Recent Changes in the Residential Property Market*

A simple model of the Australian residential property market incorporating two form of tenure, owner occupation and renting, is developed. While the supply of housing services is common to both tenures, the demands of tenants and owner occupiers are independent and separate. The equilibrium values of rental and house prices are determined simultaneously in the two sectors. The model is then used to qualitatively assess the likely effects on rents and house prices of some important elements of the September 1985 tax package.     

Housing and unemployment: The search for the “American Dream”

This paper constructs a model of search and bargaining across two different markets: the labor market and the housing market. Interestingly, the model highlights that housing prices and frictions in the housing market have a profound impact on labor market activity through the desire of workers to eventually purchase a home, the “American Dream.” In particular, higher housing prices adversely affect workers’ incentives in the labor market as employment can eventually lead to access to housing through the ability to purchase a home. Similarly, labor market frictions can impact housing market activity. Notably, tighter housing markets are associated with higher unemployment rates and less job creation. Consequently, our work suggests that policymakers should be very careful in implementing policies targeted towards housing – housing markets are likely to generate significant external effects to other sectors of the economy, especially the labor market.     

异质性预期、投资者行为与房价波动：上海和广州的双城记?

房地产市场中存在大量的投资者,其市场行为会使房价出现大幅的波动,从而引起市场不稳定。文章在引入投资者异质性预期假设的基础上,构建了包含房地产消费者、投资者、供给者在内的房地产市场均衡模型,分析了房地产市场中基本面型投资者和趋势型投资者的异质性行为对房价变动的影响,并利用上海和广州两个一线城市的实际数据进行了对比分析。研究结果表明：在房地产市场中,两类投资者对于未来房价不同的预期以及投资行为会引起房价的变动;上海投资者的行为整体上会使上海的房价始终处于不断上涨的趋势中,而广州投资者的行为会随着投资策略的转变而使静态下的“整体上推动房价趋势型变化”转变为“整体上将房价‘拉回’基本面价格”;房地产市场中的投资者占比会显著影响房价的变动趋势,当基本面型投资者占比上升时,房价偏离度和房价变动率降低,而当这类投资者占比达到峰值时,房价会出现拐点;投资者之间的策略转换速度也会通过引起基本面型投资者占比的变化,引起房价的频繁波动,而且策略转换速度越快,房价波动越频繁。     

How can a strong currency or drop in oil prices raise inflation and the black-market premium?

Based on the case of Venezuela, an oil exporter with a multiple exchange rate regime, this paper explains two counterintuitive phenomena. First, a fall in oil revenue can drive a steep rise in inflation by reducing foreign exchange for imports and raising the fiscal deficit financed by money growth. Second, when foreign exchange is rationed, a devaluation of the official exchange rate could produce a transitory fall in inflation by reducing the fiscal deficit and subsidies for buying foreign exchange. The paper also shows that the black market exchange rate can be rising far faster than overall inflation if it is driven by prices in the most distorted goods markets. The channels emphasized in this paper for determining inflation and the black market exchange rate are novel in the literature and may provide avenues of future research on commodity exporters and foreign exchange constraints.