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Market Power in the Carbonated Soft Drink Industry

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  • Allender, William J.
  • Richards, Timothy J.

Abstract

We investigate the strategic pricing for leading brands sold in the carbonated soft drink (CSD) market in the context of a flexible demand specification (i.e. random parameter nested logit) and a structural pricing equation. Our approach does not rely upon the often used ad hoc linear approximations to demand and profit-maximizing first-order conditions. We estimate the structural pricing equation using four different estimators (i.e. OLS, LIML, 2SLS, and GMM) and compare the implied deviation from Bertrand-Nash competition. Our results suggest that retailers, on average, price CSD brands below their cost, likely a result of the competitive retailing environment. We also find CSD wholesalers price their brands significantly more cooperatively than Bertrand-Nash would suggest, thus inflating profits.

Suggested Citation

  • Allender, William J. & Richards, Timothy J., 2011. "Market Power in the Carbonated Soft Drink Industry," 2011 Annual Meeting, July 24-26, 2011, Pittsburgh, Pennsylvania 104222, Agricultural and Applied Economics Association.
  • Handle: RePEc:ags:aaea11:104222
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    File URL: http://purl.umn.edu/104222
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    Keywords

    Market Power; Carbonated Soft Drinks; Econometrics; LIML; Agribusiness; Agricultural and Food Policy; Demand and Price Analysis; Industrial Organization;

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