Estimating industry conduct using promotion data

We estimate the evolution of competition in the ready‐to‐eat cereal industry. To separately identify detailed patterns of industry conduct from unobserved marginal cost shocks, we construct novel instruments that interact data on rival firms' promotions with measures of products' relative...

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Bibliographic Details
Published in:The Rand journal of economics 2024-12, Vol.55 (4), p.658-683
Main Authors: Michel, Christian, Paz y Miño, Jose Manuel, Weiergraeber, Stefan
Format: Article
Language:English
Subjects:
Behavior
conduct estimation
Coordination
differentiated products markets
market power
markups
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Summary:We estimate the evolution of competition in the ready‐to‐eat cereal industry. To separately identify detailed patterns of industry conduct from unobserved marginal cost shocks, we construct novel instruments that interact data on rival firms' promotions with measures of products' relative isolation in the characteristics space. We find strong evidence for partial price coordination among cereal manufacturers in the beginning of our sample. After a merger in 1993 conduct becomes more competitive and on average consistent with multiproduct Nash pricing. The last part of our sample is characterized by even more aggressive pricing, implying median wholesale margins of less than 5%.
ISSN:0741-6261
1756-2171
DOI:10.1111/1756-2171.12477