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Conduct in the Soft Drink Market: A Mechanism Design Approach

Author

Listed:
  • Otsu, Taisuke
  • Pesendorfer, Martin

Abstract

This paper introduces a novel method for assessing conduct and welfare in demand/supply product markets, departing from conventional supply-side assumption and embracing a mechanism design approach. Our proposed measures are robust to assumptions about the details of the market game being played and the strategic choice variable. To evaluate the effectiveness of our method, we examine the soft drink market, benchmarking it against (i) markup estimates from accounting data and (ii) the pass-through estimates from the difference-in-difference literature. We show that our cost estimates are inline with the benchmarks. Finally, we show that the resulting welfare estimates are significantly lower than those obtained using the traditional Bertrand or Cournot models.

Suggested Citation

  • Otsu, Taisuke & Pesendorfer, Martin, 2024. "Conduct in the Soft Drink Market: A Mechanism Design Approach," CEPR Discussion Papers 19567, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:19567
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    File URL: https://cepr.org/publications/DP19567
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    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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