USING RETAIL DATA FOR UPSTREAM MERGER ANALYSIS

The typical situation that antitrust authorities face is toanalyze a proposed manufacturer merger using scanner data atretail level. I start with a benchmark model of manufacturers'and retailers' sequential pricing behavior. Then I perform counterfactualexperiments to explore the relationship between downstream retailerpricing models and the resulting estimates of upstream mergers,in the absence of wholesale prices. Looking at scanner datafor the ground coffee category sold at several retail chainsin Germany, I find that not considering retail pricing explicitlywhen analyzing the potential consequences of an upstream mergerresults in simulated changes in welfare that are significantlydifferent given the underlying model of retail pricing behavior.These findings are relevant for competition policy, and authoritiesshould consider incorporating the role of retailers in upstreammerger analyses, especially in the presence of increasinglyconsolidated retail food markets.