Common Ownership and Competition in the Ready-to-Eat Cereal Industry / Matthew Backus, Christopher Conlon, Michael Sinkinson.

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Backus, Matthew

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w28350.Publication details: Cambridge, Mass. National Bureau of Economic Research 2021.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: Models of firm conduct are the cornerstone of both theoretical and empirical work in industrial organization. A recent contribution (Berry and Haile, 2014) has suggested the use of exclusion restrictions to test alternative conduct models. We propose a pairwise testing procedure based on this idea and show that the power of the test to discriminate between models is tied to the formulation of those restrictions as moments and how they reflect the nonlinearity of equilibrium markups. We apply this test to the ready-to-eat cereal market using detailed scanner and consumer data to evaluate the "common ownership" hypothesis, which has received significant attention. Although we show that the potential magnitude of common ownership effects would be large, our test finds that standard own-firm profit maximization is more consistent with the data.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w28350 (Browse shelf(Opens below))	Not For Loan

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January 2021.

Models of firm conduct are the cornerstone of both theoretical and empirical work in industrial organization. A recent contribution (Berry and Haile, 2014) has suggested the use of exclusion restrictions to test alternative conduct models. We propose a pairwise testing procedure based on this idea and show that the power of the test to discriminate between models is tied to the formulation of those restrictions as moments and how they reflect the nonlinearity of equilibrium markups. We apply this test to the ready-to-eat cereal market using detailed scanner and consumer data to evaluate the "common ownership" hypothesis, which has received significant attention. Although we show that the potential magnitude of common ownership effects would be large, our test finds that standard own-firm profit maximization is more consistent with the data.