Explaining Uniform Pricing in Retail Markets –The Role of Consumer Self-Sorting.
- Abstract: This paper examines the empirical fact that large retail chains choose to set uniform prices across different local markets, forfeiting potentially large profits by not pricing to market. The paper contributes with a new explanation to uniform pricing strategies: heterogeneous consumers self-sort into different product types. This alleviates some concerns about both optimality and distribution. Using a large and novel data set of itemized shopping receipts from the Norwegian grocery market, I offer empirical support for this explanation.
Sorting and the Effect of Consumption Taxes.
- Abstract: Consumption taxes on goods that may cause negative externalities, e.g. tobacco, alcohol and sugary products, are frequently referred to as sin taxes. By estimating an average pass-through rate for the taxed category, previous literature estimates welfare and distributional effects of these taxes. Using a simple theoretical model, I show how using an average pass-through rate for the category leads to biased estimates if consumers self-sort. Using an exogenous change in the Norwegian sugar taxes to estimate effects on prices and pass-through rates, I show that pass-through is larger for high-price (and low-elasticity) items. By combining item-level pass-through rates and store-item level demand elasticities, I show that there indeed is a negative correlation between the elasticity of demand and pass-through rate of an item. Using consumer-level data on grocery purchases, I show that items purchased by low-income consumers on average have higher elasticities of demand. The low-income consumers also face smaller pass-through rates, as predicted by my model. The empirical findings highlight that using average pass-through rate per product category will bias estimates of welfare effects of consumption taxes.
Endogenous Cartel Formation and Differentiated Price Competition.
- Abstract: Cartels may cause great harm to consumers and economic efficiency. However, literature on endogenous cartel formation with dynamic competition is scarce. This paper is the first to endogenize cartel formation in a model with differentiated products. In a model with symmetric firms, linear costs and quadratic profit functions, I find that the size of a stable cartel decreases (increases) when products become more differentiated (homogeneous). Furthermore, I find that the size of the smallest stable cartel rarely exceeds six to seven firms, as the relative pay-off from free-riding increases faster in cartel size than the pay-off from collusion — irrespective of industry size. Finally, I find that industry-wide cartels may not be incentive compatible when products are sufficiently homogeneous. Otherwise, the incentive compatibility constraint likely holds.
Work in progress
Merker, Tyra, and Moxnes, Andreas. “Market power and investment – The case of technology adoption in the Norwegian groceryindustry” PDF (Extended abstract)
Merker, Tyra. “Dynamic Duopoly with Collusion and Horizontal Product Differentiation“. PDF
Asphjell, M.K., Bergh, H.N., Merker, T. and Skaar, J., 2017, Unilateral Effects of Horizontal Mergers with Vertical Relations Between Firms and Other Structural Market Changes. Review of Industrial Organization, 51(3), pp.381-394.
Merker T., Kristiansen I.S., Saether, E.M., 2016, Human Resources for Health care in the Nordic economies: successful today, but sustainable tomorrow?. Health employment and economic growth: an evidence base. Geneva: World Health Organization, (ed.) Buchan J, Dhillon I, Campbell J
Short video presentation of my job market paper (2021-2022):