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Tuesday, October 17th, 2023

Dennis Rickert (MINES Paris) will present “When Retail Mergers Benefit Producers, Processors and Consumers: Empirical Evidence from Germany”.

Abstract:

Increasing concentration (e.g., through merger activity) is one of the major policy concerns of our times. Retail mergers are different than other mergers because larger retailers can (i) distribute the share of costs over more units (fixed cost degression) and (ii) demand lower input prices when buying more items (buyer power). We use a difference-indifference estimation combined with a structural model to analyze the effects of a retail merger between a German supermarket chain and a soft discounter on retail prices, retail costs, and buyer power. Using data from two complementary grocery retailing categories, we disentangle three post-merger effects: market power, efficiency gains in distribution, and buyer power increase vis-a-vis the suppliers (i.e., the ability to negotiate lower input prices). We find that retailers decrease prices while being able to increase markups, which is caused by cost savings from fixed cost degression and increased buyer power. Although suppliers get lower prices, they benefit nonetheless by selling more units at a lower price, which we explain with reduced double-markup inefficiencies.