Using Retail Data for Upstream Merger Analysis

The typical situation faced by antitrust authorities is to analyze a proposed manufacturer merger using scanner data at retail-level. I start with a benchmark model of manufacturers' and retailers' sequential pricing behavior. Then I perform counterfactual experiments to explore the relationship between downstream retailer pricing models and the resulting estimates of upstream mergers, in the absence of wholesale prices. Looking at scanner data for the ground coffee category sold at several retail chains in Germany I find that not considering retail pricing explicitly when analyzing the potential consequences of an upstream merger, results in simulated changes in welfare that are significantly different given the underlying model of retail pricing behavior. These findings are relevant for competition policy, and authorities should consider incorporating the role of retailers in upstream merger analyzes, especially in the presence of increasingly consolidated retail food markets