IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/109039.html
   My bibliography  Save this paper

Concentration, Retail Markups, and Countervailing Power: Evidence from Retail Lotteries

Author

Listed:
  • Giroldo, Renato
  • Hollenbeck, Brett

Abstract

In this note, we investigate the causal link between market concentration and markups in a retail setting. We study the Washington retail cannabis industry, which features exogenous variation in market concentration that resulted from retail licenses being awarded via lotteries. We observe markups directly. We find a negative causal relationship between markups and concentration, where more concentrated markets have significantly lower markups and wholesale prices. The results provide direct evidence of countervailing buyer power by retailers. These results highlight the value of using industry specific data and rich models of competition to advance the debate on concentration and markups.

Suggested Citation

  • Giroldo, Renato & Hollenbeck, Brett, 2021. "Concentration, Retail Markups, and Countervailing Power: Evidence from Retail Lotteries," MPRA Paper 109039, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:109039
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/109039/1/MPRA_paper_109039.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Steven Berry & Martin Gaynor & Fiona Scott Morton, 2019. "Do Increasing Markups Matter? Lessons from Empirical Industrial Organization," Journal of Economic Perspectives, American Economic Association, vol. 33(3), pages 44-68, Summer.
    2. Philippon, Thomas & Gutierrez, German, 2018. "How EU Markets Became More Competitive Than US Markets: A Study of Institutional Drift," CEPR Discussion Papers 12983, C.E.P.R. Discussion Papers.
    3. Zhou, Jidong, 2009. "Prominence and Consumer Search: The Case With Multiple Prominent Firms," MPRA Paper 12554, University Library of Munich, Germany.
    4. Mark Armstrong & John Vickers & Jidong Zhou, 2009. "Prominence and consumer search," RAND Journal of Economics, RAND Corporation, vol. 40(2), pages 209-233, June.
    5. Bond, Steve & Hashemi, Arshia & Kaplan, Greg & Zoch, Piotr, 2021. "Some unpleasant markup arithmetic: Production function elasticities and their estimation from production data," Journal of Monetary Economics, Elsevier, vol. 121(C), pages 1-14.
    6. Sharat Ganapati, 2018. "The Modern Wholesaler: Global Sourcing, Domestic Distribution, and Scale Economies," Working Papers 18-49, Center for Economic Studies, U.S. Census Bureau.
    7. Chad Syverson, 2004. "Market Structure and Productivity: A Concrete Example," Journal of Political Economy, University of Chicago Press, vol. 112(6), pages 1181-1222, December.
    8. Ali Hortaçsu & Chad Syverson, 2007. "Cementing Relationships: Vertical Integration, Foreclosure, Productivity, and Prices," Journal of Political Economy, University of Chicago Press, vol. 115(2), pages 250-301.
    9. Van Reenen, John, 2018. "Increasing differences between firms: market power and the macro-economy," LSE Research Online Documents on Economics 91698, London School of Economics and Political Science, LSE Library.
    10. Brett Hollenbeck & Renato Zaterka Giroldo, 2022. "Winning Big: Scale and Success in Retail Entrepreneurship," Marketing Science, INFORMS, vol. 41(2), pages 271-293, March.
    11. Germain Gaudin, 2018. "Vertical Bargaining and Retail Competition: What Drives Countervailing Power?," Economic Journal, Royal Economic Society, vol. 128(614), pages 2380-2413, September.
    12. Matias Covarrubias & Germán Gutiérrez & Thomas Philippon, 2019. "From Good to Bad Concentration? US Industries over the Past 30 Years," NBER Chapters, in: NBER Macroeconomics Annual 2019, volume 34, pages 1-46, National Bureau of Economic Research, Inc.
    13. Chad Syverson, 2019. "Macroeconomics and Market Power: Context, Implications, and Open Questions," Journal of Economic Perspectives, American Economic Association, vol. 33(3), pages 23-43, Summer.
    14. Dominic Smith & Sergio Ocampo, 2020. "The Evolution of U.S. Retail Concentration," Economic Working Papers 526, Bureau of Labor Statistics.
    15. Andrew Rhodes, 2015. "Multiproduct Retailing," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 82(1), pages 360-390.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Brett Hollenbeck & Renato Zaterka Giroldo, 2022. "Winning Big: Scale and Success in Retail Entrepreneurship," Marketing Science, INFORMS, vol. 41(2), pages 271-293, March.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Brett Hollenbeck & Renato Zaterka Giroldo, 2022. "Winning Big: Scale and Success in Retail Entrepreneurship," Marketing Science, INFORMS, vol. 41(2), pages 271-293, March.
    2. Panon, Ludovic, 2022. "Labor share, foreign demand and superstar exporters," Journal of International Economics, Elsevier, vol. 139(C).
    3. repec:hal:wpspec:info:hdl:2441/5j3i17uo7399t940lrt6h6n545 is not listed on IDEAS
    4. repec:hal:spmain:info:hdl:2441/5j3i17uo7399t940lrt6h6n545 is not listed on IDEAS
    5. Díez, Federico J. & Fan, Jiayue & Villegas-Sánchez, Carolina, 2021. "Global declining competition?," Journal of International Economics, Elsevier, vol. 132(C).
    6. Philipp R. Steinbrunner, 2023. "May It Be a Little Bit More of Market Power? On Productivity Growth and Competition," Journal of Industry, Competition and Trade, Springer, vol. 23(3), pages 123-170, December.
    7. Andrew Rhodes & Jidong Zhou, 2019. "Consumer Search and Retail Market Structure," Management Science, INFORMS, vol. 67(6), pages 2607-2623, June.
    8. repec:hal:wpspec:info:hdl:2441/6q707l4svn8k3bt630nhgdqgdu is not listed on IDEAS
    9. Thomas Hasenzagl & Luis Perez, 2023. "The Micro-Aggregated Profit Share," Papers 2309.12945, arXiv.org, revised Nov 2023.
    10. Bourguignon, Hélène & Gomes, Renato & Tirole, Jean, 2019. "Shrouded transaction costs: must-take cards, discounts and surcharges," International Journal of Industrial Organization, Elsevier, vol. 63(C), pages 99-144.
    11. Yannick Bormans & Angelos Theodorakopoulos, 2023. "Productivity dispersion, wage dispersion and superstar firms," Economica, London School of Economics and Political Science, vol. 90(360), pages 1145-1172, October.
    12. repec:hal:spmain:info:hdl:2441/6q707l4svn8k3bt630nhgdqgdu is not listed on IDEAS
    13. Vanessa Alviarez & Keith Head & Thierry Mayer, 2020. "Global giants and local stars: How changes in brand ownership affect competition," Sciences Po Economics Discussion Papers 2020-04, Sciences Po Departement of Economics.
    14. Diane Coyle & John McHale & Ioannis Bournakis & Jen-Chung Mei, 2023. "Recent Trends in Firm-Level Total Factor Productivity in the United Kingdom: New Measures, New Puzzles," Working Papers 036, The Productivity Institute.
    15. Ugur, Mehmet, 2024. "Innovation, market power and the labour share: evidence from OECD industries," Greenwich Papers in Political Economy 38374, University of Greenwich, Greenwich Political Economy Research Centre.
    16. Louis Rouanet, 0. "Competition is (still) a tough weed: A review essay of Thomas Philippon’s The great reversal: How America gave up on free markets," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 0, pages 1-14.
    17. Ronald R. Kumar & Peter J. Stauvermann, 2022. "Imperfect Competition, Real Estate Prices and New Stylized Facts," JRFM, MDPI, vol. 15(3), pages 1-17, February.
    18. Ding, Yucheng & Zhang, Tianle, 2018. "Price-directed consumer search," International Journal of Industrial Organization, Elsevier, vol. 58(C), pages 106-135.
    19. Jonathan Hambur, 2023. "Product Market Competition and its Implications for the Australian Economy," The Economic Record, The Economic Society of Australia, vol. 99(324), pages 32-57, March.
    20. Jidong Zhou & Andrew Rhodes, 2015. "A Search Theory of Retail Market Structure," 2015 Meeting Papers 409, Society for Economic Dynamics.
    21. Sander Heinsalu, 2023. "Greater search cost reduces prices," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 75(3), pages 923-947, April.
    22. Akin A. Cilekoglu, 2023. ""Labor Market Monopsony and Firm Behavior: Evidence from Spanish Exporters"," IREA Working Papers 202307, University of Barcelona, Research Institute of Applied Economics, revised Jul 2023.
    23. Dale-Olsen, Harald, 2023. "The Impact of New Free Trade Agreements on Incumbent Firms and Workers," IZA Discussion Papers 16649, Institute of Labor Economics (IZA).
    24. Jan Weber, Ellis Scharfenaker, 2022. "Measures of firm performance and concentration: stylized facts and a dilemma of data reproduction," Working Paper Series, Department of Economics, University of Utah 2022_03, University of Utah, Department of Economics.

    More about this item

    Keywords

    markups; market concentration; retail; countervailing buyer power; cannabis policy;
    All these keywords.

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • R32 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other Spatial Production and Pricing Analysis

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:109039. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.