Events at CERGE-EI

Nathan Miller, Ph.D.

Georgetown University, Washington, DC, USA

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Authors: Nathan H. Miller, Gloria Sheu, and Matthew C. Weinberg

Abstract: We study an infinitely-repeated game of oligopolistic price leadership in which one firm, the leader, proposes a supermarkup over Bertrand prices to a coalition of rivals. We estimate the model with aggregate scanner data on the beer industry and find the supermarkup accounts for 6% of price. Price leadership increases profit by 8.9% relative to Bertrand competition, and decreases consumer surplus by nearly four times the change in profit. We use the model to simulate the ABI/Modelo merger. The merger relaxes incentive compatibility constraints and increases the equilibrium supermarkup. Merger efficiencies do not mitigate—and can amplify—this coordinated effect.

Keywords: price leadership, coordinated effects, mergers

JEL classification: K21; L13; L41; L66
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Full Text: “Oligopolistic Price Leadership and Mergers: The United States Beer Industry”