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Wholesale Price Discrimination: Inference and Simulation

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  • Villas-Boas, Sofia Berto

Abstract

This paper makes inferences about wholesale price discrimination and uniform wholesale pricing policy in a national grocery retail market where wholesale price discrimination occurs. I estimate demand and a supply model of multiple retailers’ and manufacturers’ oligopoly-pricing behavior where manufacturers may engage in wholesale price discrimination, which allows me to recover brand level marginal costs in this market. Then I simulate the welfare effects of no wholesale price discrimination via uniform price regulation given observed data on retail and input prices and retail quantities sold and not available data on wholesale prices. This approach uses retail level scanner data on coffee produced by multiple manufacturers sold at the largest retail outlets in Germany. The estimates of uniform wholesale pricing in this market suggest there to be positive welfare effects from preventing wholesale price discrimination, originating from positive effects on consumer surplus of the same magnitude as on joint vertical producer surplus. I show through simulations that estimated welfare decreases, due to higher retail prices under no wholesale price discrimination, for more collusive retail and manufacturer counterfactual scenarios. Finally, and in terms of counterfactual demand simulations, I find that banning wholesale price discrimination may be actually welfare improving the less heterogeneous and the more elastic demand is.

Suggested Citation

  • Villas-Boas, Sofia Berto, 2007. "Wholesale Price Discrimination: Inference and Simulation," CUDARE Working Papers 7166, University of California, Berkeley, Department of Agricultural and Resource Economics.
    • Handle: RePEc:ags:ucbecw:7166
    DOI: 10.22004/ag.econ.7166
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    1. Sofia Berto Villas-Boas, 2007. "Using Retail Data For Upstream Merger Analysis," Journal of Competition Law and Economics, Oxford University Press, vol. 3(4), pages 689-715.
    2. Villas-Boas, Sofia B, 2007. "Using Retail Scanner Data for Upstream Merger Analysis: Counterfactual Experiments in the Retail Coffee Market," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt5cn9d0rk, Department of Agricultural & Resource Economics, UC Berkeley.

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